The purpose of this study is to use theoretical approaches and previous research related to capital structure to show if the three selected firm characteristics explain the capital structure of small unlisted Swedish firms. The theories that are tested are primarily Pecking-order theory and the Trade-off theory. A quantitative approach has been used in our thesis where six hypotheses are formed according to the theoretical approaches. The thesis has a positivistic research philosophy and a deductive approach.

The analysis is based on both simple and multiple regression analyzes that were calculated from the material obtained in the annual reports of the 220 selected firms. All of the selected firms were randomly chosen from a list of small businesses that are not listed on any exchange list. The results indicate that the theoretical approaches developed to describe the choice of capital structure of large firms do not explain the same for Swedish small businesses. However, there are relationships that support the theoretical approaches and hypotheses, but the coefficient of determination for the explanatory firm characteristics related to small firms leverage indicate that the correlation is weak. The study provides a snapshot of the relationship between leverage and the selected explanatory firm characteristics: asset structure, profitability and growth, based on firms´ annual reports for the year 2011.