The Structure of Corporate Finance in Belgium: An Empirical Investigation

This paper studies the factors influencing the capital structure of Belgian corporate finance since 1984. Using three different datasets, aggregate balance sheets, aggregate flows of funds and a large panel of individual firms followed up during 10 years, we are able to give some empirical evidence for the importance of institutional features in the choice of corporate financing decisions. At the aggregate level, large firms are generally more highly levered; however, in the past ten years we observe a clear reduction in bank debt and a sharp increase in financial assets. Small firms on the other hand are less highly levered but have shifted toward greater long-term debt in recent years. Using flows of funds, we find that small firms have corporate financing decisions that remain roughly constant through time with a clear dominance of self-finance. In contrast we note for large firms an increased reliance on external sources of finance. Possible explanations of these patterns are investigated in our econometric study of panel data. We find that Belgian firms rely primarily on internal funds which seems to confirm the ''pecking order'' story of Myers and Majluf (1984). We also find that the emergence of coordination centers in the late 1980's explain much of the changing financial structure of large Belgian firms. These structures allow a higher leverage while they reduce the proportion of bank finance. Finally, control considerations are shown to explain the high level of financial assets on large firms' balance sheets.