This study investigates the speed of adjustment of capital structure of small and medium capitalised firms in Europe before and during the sovereign debt crisis period. The sample includes 306 firms from 10 European countries comprising 2,142 firm-year observations for the period 2006 to 2013. After controlling the influence of firm-level, industry-level, and macroeconomic factors on debt levels, we report that small and medium capitalised firms have adjusted their capital structure during the sovereign debt crisis period and the speed of adjustment was quicker in non-stressed countries compar...