Circular Economy Indicators and Capital Structure Determinants of Small Agricultural Enterprises: Evidence from Serbia

This study examines the determinants of capital structure in small agricultural enterprises in Serbia, with a particular emphasis on the external context shaped by circular economy (CE) indicators. Using a balanced panel of 254 firms between 2014 and 2022 (2286 firm-year observations), we estimate random-effects models with panel-corrected standard errors. The dependent variable is financial leverage, while explanatory variables include internal firm characteristics (liquidity, debt ratio, profitability, and asset tangibility) and territory-level CE indicators (municipal waste generated per capita, municipal waste recycling rate, and greenhouse-gas emissions from production activities). The model is statistically significant (χ2 = 82.49; p < 0.01) and explains 33.7% of leverage variation. The results show that debt ratio positively and strongly relates to leverage, whereas profitability exhibits a negative and significant association, consistent with the pecking-order theory. Regarding the CE context, higher waste generation and higher GHG emissions are associated with lower leverage, while a higher recycling rate has a positive, marginal effect, suggesting that improved circular performance may ease access to external finance by lowering perceived risk among creditors. These findings highlight that environmental performance and local circularity conditions matter for financing decisions in agriculture. Policy implications include promoting CE practices and local recycling capacities to support sustainable financing. Future research should test dynamic specifications and enterprise-level CE metrics.