LAUSR

Based on a unique dataset of Italian small- and medium-sized enterprises (SMEs) over the 2006–2016 period, we investigate how the recent global financial crisis impacted SMEs’ capital structure decisions and their determinants. Our results show that credit supply shocks negatively impacted Italian SMEs’ leverage. During and after the crisis, Italian SMEs significantly decreased their leverage, particularly their short-term debt exposure, relative to the pre-crisis period. As a result, the short-term debt channel is more sensitive to credit conditions than the long-term debt channel. Interestingly, we also show that trade credit does not compensate for the reduction in bank credit. Finally, our findings reveal that riskier and more profitable firms reduced their leverage more during the crisis than during the pre-crisis period. Implications for firms and policymakers are discussed.