Regional Differences in the Capital Structure of Hungarian SMEs

Abstract Small and medium-sized enterprises play an important role in employment and also significantly contribute to GDP production. Therefore, an important function of economic policy in all countries is to create an economic milieu that supports the SMEs’ operation. By analysing several economic indices of SMEs in Hungary, we could identify that there are significant differences between the regions. About 40 percent of the enterprises are located in the Central Hungary Region. By examining specific indices of these firms, we can tell that enterprises operating in this region provide higher performance in the point of Return and Gross Value Added. The aim of this study is to assert that regional differences can be found not only in the performance of firms, but also in their capital structure. As a proof of this, we analysed the regional breakdown of capital structure based on a database which contains corporate income tax declaration data of Hungarian joint small and medium-sized enterprises (168,070 firms), and then we separated different financing characteristics by using cluster analysis. Finally, we discovered those endogenous and exogenous factors that could generate the disclosed regional differences and which interact with the performance of enterprises.