Capital Structure Dynamics and Their Impact on Financial Performance in SMEs of the Road Transportation Sector

Abstract

Capital structure directly affects the financial health of companies. This research addresses a significant gap in understanding the relationship between capital structure and key economic-financial variables in the road transport sector in Spain. Its analysis seeks to improve SME financial management and strengthen the economic framework in Spain and Europe. Robust analyses of 398 Spanish road transport SMEs (2012–2021) were performed using the Arellano-Bond GMM model with lagged variables to address endogeneity. GMM estimator deals with the problem of endogeneity, serial correlation, and unobserved heterogeneity. This approach enables a detailed examination of the impact of ROA, ROE, tangibility, asset size, and type of indebtedness on capital structure. Additionally, a fixed-effects regression model was employed to ensure greater robustness. The empirical findings reveal that capital structure is positively related to short- and long-term debt and ROA, but negatively related to ROE. Annual fluctuations indicate a pattern where increases in debt levels 1 year are often followed by reductions in the next, reflecting a conservative approach to financial management. Tangibility, trade credit ratio, and asset size showed no significant effect. The findings primarily support the Trade-Off Theory. The econometric model enables the design of new debt policies to improve the profitability of transport companies. In turn, it helps to understand intertemporal dynamics, reducing debt-related risks while strengthening resilience. It also fills a key research gap and helps financiers assess capital structure with other financial metrics.