Capital structure adjustment process in firms accessing venture funding

Resumen

This paper analyses the dynamic behaviour of the capital structure in a sample of Spanish venture capital (VC) backed firms and a matched sample of firms that do not receive VC. The results show that the former adjust their target debt ratio more slowly, which could be explained either by the existence of more severe financial constraints in these firms, as shown in previous literature, or by the fact that these firms could be more concerned about financing their growth than about reaching the target debt level. Additionally, differences in the factors that affect the debt ratio are found between both groups, especially regarding growth opportunities. In this way, the paper also sheds light on the factors related to the financial structure of firms that could explain why they access VC funding. Regarding the implications, it should be remarked that growing firms that are able to take advantage of growth opportunities should approach VC firms to reduce the increased distance to their target debt levels, if those firms choose to go ahead with the required investments, and/or to allow those firms not to forgo their growth prospects because their owners are not willing to accept leverage ratios beyond the target.