Regional Heterogeneity Impact on Capital Structure: The Case of the Textile Industry in Portugal

Abstract

This study aims to analyze the impact of regional heterogeneity on micro, small and medium enterprises (MSMEs) capital structure. Specifically, this paper studies the regional impact on firms’ indebtedness through indicators that measure regional social, economic, and financial development, and also if the determinants that explain firms’ debt levels are different across regions belonging to the same country. Fixed effect models are applied to an unbalanced panel data of 1,566 firms of the manufacturing textile industry in Portugal, over the period 2015–2020. The data is collected from the SABI and Pordata databases. Results suggest that regional development, namely regional expansion, and the number of bank branches impact firms’ indebtedness. These differences influence the firm’s access to different financial funds and can justify the geographical concentration of firms in some regions. We also found a substitute effect of bank and trade credit but only to firms located in the Centre region.