What Do We Know About the Capital Structure of Privately Held Firms? Evidence from the Surveys of Small Business Finance

This study examines the capital-structure decisions of privately held US firms using data from four nationally representative surveys conducted from 1987 to 2003. Book-value firm leverage, as measured by either the ratio of total loans to total assets or the ratio of total liabilities to total assets, is negatively related to firm age and minority ownership; and is positively related to industry median leverage, the corporate legal form of organization, and to the number of banking relationships. In general, these results provide mixed support for both the Pecking-Order and Trade-Off theories of capital structure. What do we know about the capital structure of privately held US firms? The answer is “not much,” as almost all existing empirical studies of the capital structure of US firms have relied upon Compustat data for large corporations with publicly traded securities. 1 Although such large, publicly traded corporations hold the vast majority of business assets, they account for only a small fraction of the number of business entities. In the United States, for example, there are fewer than 10,000 firms that issue publicly traded securities, yet according to the US Internal Revenue Service, there were approximately 30 million small businesses as of