Adaptation or persistence? : capital structure choices of Italian firms over time

Understanding how firms finance their activities is crucial for fostering economic growth. The financial life cycle is a critical framework for understanding how firms' financing needs and strategies evolve over time. This paper examines the capital structure choices of Italian SMEs focusing on the role of firm life cycle. Using financial data from 512,027 firms companies over 2012-2023, we observe a nonlinear relationship between age and leverage. Results confirm a lifecycle pattern where younger firms rely more on debt, while mature firms shift towards internal funding. Our evidence supports the persistence of La Rocca et al. (2011)'s findings despite significant economic changes, including the global financial crisis, the coronavirus downturn and recent sustainability challenges. Our findings highlight the importance of tailored financing strategies for SMEs based on their life cycle stage.