Small firm finance and public policy

Abstract

Examines how a finance gap for small firms might be addressed by means of government policy to support informal financing initiatives. A review of both the finance and the government policy literature provides the basis for discussing and conceptualising the financing difficulties faced by small firms, the role of informal financing in alleviating certain of these difficulties and the areas where public policy is currently usefully employed in addressing such financing problems. Undertakes a questionnaire survey to collect data concerning small business awareness and use of informal finance and to identify issues concerning difficulties encountered in gaining access to finance. The results suggest that a debt finance gap may exist for a minority of firms, though an equity finance gap may represent a more significant issue for small firms. Four categories of policy action emerge from the study towards the achievement of economic and social policy objectives.

Effects of Soft Loans and Credit Guarantees on Performance of Supported Firms: Evidence from the Czech Public Programme START

“…In addition to the moral hazard, this might also be a case of adverse selection problem, e.g., [43,44]. Therefore, the supported enterprises may report even higher rates of the default and worse financial results when compared to the regular non-supported companies, which is of course not favourable for the taxpayers who have to pay the costs of the programme, e.g., [30,33,81,82].…”

“…This approach is theoretically justified by an existence of the "finance gap", which is caused by the presence of information asymmetries on the financial markets for small and medium-sized enterprises (SMEs), which are unable to gain enough of financial capital for their business activities, e.g., [31,33,34]. Allocation of the financial resources is often mediated through the system of zero interest soft loans and credit guarantees provided by the governmental institutions.…”

“…Financial institutions are not capable to obtain all of the relevant information about the loan applicants, therefore, they over-qualify applicant's risk of bankruptcy, especially for new projects/start-ups and as a result, entrepreneurs aiming to deliver innovation to the market, do not get enough of financial resources. Because of information asymmetries and high transaction costs, financial institutions are reluctant to lend to entrepreneurs, or they lend at very high interest rates, and, therefore, public intervention through soft loans and credit guarantees might be an option as to how to alleviate some of the market imperfections, e.g., [29][30][31][32][33][34].…”

Does Asymmetry of Information Drive Banks’ Capital Structure? Empirical Evidence from Jordan

“…In a lot of occasions, banks react to these risks based on the value of the collateral available. This poses a challenge for small banks, where, they do not generally have substantial fixed assets as security (Tucker & Lean, 2003). The commonly existing asymmetric information in small banks might also persuade lenders to seek out guarantees in collateral (Myers, 1977;Harris & Raviv, www.ccsenet.org/ijef International Journal of Economics and Finance Vol.…”

La recherche en finance entrepreneuriale

“…Ils peuvent même affecter les attitudes et les comportements des entrepreneurs face à l'acte entrepreneurial (Smallbone et Welter, 2001). Devant ces difficultés, certains auteurs ont repéré quelques solutions ou alternatives : les dispositifs d'aide publique (Tucker et Lean, 2003 ;Pandit et al, 2000), le réseau de soutien ou le capital social (Brüderl et Preisendörfer, 1998) ou l'introduction en bourse (Mahérault, 2000). Ces solutions ne sont pas généralisables et ne concernent pas toutes les PME, mais elles indiquent toutefois que l'offre de financement aux sociétés fermées est distincte de celle dont peuvent se prévaloir les sociétés ouvertes ; on ne peut donc pas analyser les décisions financières à partir des mêmes paramètres.…”