Does Religion Matter To Capital Structure in SMEs? : Evidence from the Netherlands

The aim of this paper is to analyze the influences of religion on capital structure, to what extent will religious beliefs affect capital structure decisions made by Dutch SMEs? By comparing a group of SMEs in protestant areas with a group of SMEs in non-protestant areas, the results provide evidence for a relationship between religion and capital structures of SMEs. Norms and values of religions are playing a role in making corporate finance decisions, furthermore it reduces owner-manager agency costs via restraining managers from unethical activities. This paper finds also evidence that the capital structure of SMEs in protestant areas differ from capital structures of SMEs in less- or non-protestant areas, SMEs in protestant areas are using less leverage than other comparable SMEs. Altogether, the capital structure of SMEs is influenced by religious belief to a moderate extent.