Sovereign debt crisis and capital structure decisions of firms in GIPSI countries

This quantitative study examines the reasons for changes in the leverage levels of the firms in GIPSI countries (Greece, Ireland, Portugal, Spain, and Italy), following the development of the sovereign debt crisis that began in 2009. This research belongs to the empirical literature studying the effects on firm leverage of reduced bank credit supply caused by that crisis. For all the sample firms and for each firm typology, that is, unlisted, listed, unlisted family, unlisted nonfamily, listed family and listed nonfamily, and for the entire period being analysed, the sample means of the debt-to-assets ratio in each year were calculated. The results show that owing to the lack of bank credit, unlisted firms reduced their leverage, whereas listed companies generally maintained their indebtedness, thanks to their access to financial markets. In spite of their orientation to socio-emotional wealth and its protection, unlisted family firms could not decrease their debt-to-assets ratio significantly less than unlisted nonfamily firms, due to the restriction of capital offered by banks. In contrast, the inclination toward the consolidation of socioemotional wealth possibly enabled listed family firms to take advantage of the scarcity in bank capital to increase their leverage via bond issues, while listed nonfamily firms reduced the proportion of debt they employed, as the perpetuation of the business for future generations is not an issue for them.