The Capital Structure Decisions of New Firms

Robb, Alicia; Robinson, David T.

doi:10.1093/rfs/hhs072

Cited by 610 publications

(232 citation statements)

References 24 publications

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“…However, such efforts often require external financing, which can be difficult to obtain at the initial stage via bank loans or equity capital. Thus, companies may find themselves either unfunded, or funded with a less than preferable source of capital (see, for example, Cosh, Cumming and Hughes, 2009;Robb and Robinson, 2012;and Cole and Sokolyk, 2012). To bridge this gap, politicians are suggesting new, more modern means of capital formation.…”

Section: A From Crowdfunding To Equity Crowdfundingmentioning

confidence: 99%

Signaling in Equity Crowdfunding

Ahlers¹,

Cumming

Günther

et al. 2015

Entrepreneurship Theory and Practice

1,376

1,398

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This paper presents an empirical examination of which start-up signals will small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms' financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design. Signaling in Equity CrowdfundingABSTRACT This paper presents an empirical examination of which start-up signals induce small investors to commit financial resources in an equity crowdfunding context. We examine the impact of firms' financial roadmaps (e.g., preplanned exit strategies such as IPOs or acquisitions), external certification (awards, government grants and patents), internal governance (such as board structure), and risk factors (such as amount of equity offered and the presence of disclaimers) on fundraising success. Our data highlight the importance of financial roadmaps and risk factors, as well as internal governance, for successful equity crowdfunding. External certification, by contrast, has little or no impact on success. We also discuss the implications for successful policy design. JEL Classification: G21, G24, L26Keywords: Entrepreneurial Finance, (Equity) Crowdfunding, Micro Lending, Internet, Given the recent passage of the JOBS (Jumpstart Our Business Startups) Act in the U.S., which will permit equity crowdfunding by early 2013, this number is likely to increase sharply. Small investors, who are often the primary support of start-ups, do not usually have the capability to extensively research and assess potential investments. In order to successfully raise money via an equity crowdfunding platform, therefore, start-ups need to find ways to clearly signal their value to small investors.Two contrasting London-based crowdfunding cases illustrate the issues discussed further here. In December 2011, The Rushmore Group, a start-up that now operates three bars in London, sold 10% of its equity for £1,000,000 to 143 small investors through Crowdcube.The aspiring entrepreneurs of The Rushmore Group accomplished this feat in a little over two weeks -a remarkable success story.A strikingly different outcome, however, is illustrated by our second example. In early April 2012, another owner and operator of a London bar, Meatballs, offered a 25% equity 2 stake for £300,000 on Crowdcube. Two months after the start of the offering, they had raised only £4,750.The Rushmore Group and Meatballs perform essentially the same service in the same city.Both start-ups were presented in the same fashion and on the same online platform. Why, then, di...

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Section: A From Crowdfunding To Equity Crowdfundingmentioning

confidence: 99%

Signaling in Equity Crowdfunding

Ahlers¹,

Cumming

Günther

et al. 2015

Entrepreneurship Theory and Practice

1,376

1,398

View full text Add to dashboard Cite

show abstract

“…Peteraf (1993) reports that one major contribution of RBV is explaining long-term differences in firm profitability and performance, which cannot be attributed to the variations in the industry conditions. Recent evidence suggests a relationship between organizational performance and intangible assets, which comprise of the firm's human capital (Perrigot et al, 2013), social capital-organizational or individual networks, organizational capital and capabilities (Meihami, Varmaghani, & Meihami, 2014;Zahra, 2010), and accessible financial capital (Cooper, Gimeno-Gascon, & Woo, 1994;Robb & Robinson, 2014).…”

Section: Resource-based View (Rbv) and Social Capital Theory As Undermentioning

confidence: 99%

The Moderating Role of Bridging Ties between Risk-Taking, Proactivness and Performance: The Evidence from Iranian SMEs

Jalali¹,

Jaafar²,

Talebi³

et al. 2014

IJBM

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This study explores the interaction effect of bridging ties by looking at the relationship between proactiveness, risk-taking, and performance. A questionnaire was administered to 150 manufacturing Small and Medium Enterprises (SMEs) in Iran. A model relating proactiveness and risk-taking to performance with the moderating role of bridging ties was tested using Statistical Package for the Social Sciences (SPSS) and the results proved significant. Our results indicate a positive relationship between proactiveness, risk-taking and performance. The main contribution of this study resides in addressing the significance of firm performance as a dependent variable deserving of more attention in the field of entrepreneurship and networking.

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“…By contrast, negative relationship between leverage and survival is supported by Baggs (2005). Robb and Robinson (2014) point out the most important three financing sources of start-ups: bank debt, personal equity and trade credit. Positive effects of bank finance or bank loans on survival are found in the research of, for example, Saridakis, Mole and Storey (2008), as well as Åstebro and Bernhardt (2003) who further highlight "ceteris paribus" for getting the positive effects but showing negative relationship if unconditional.…”

Section: Hypothesis 3: Profitability Is a Positive Indicator To Successmentioning

confidence: 98%

The predictability of financial, accounting‐based, and industrial factors on the success of newly incorporated Spanish firms

Tong

Solé

2018

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Purpose: The purpose of this paper is to identify the impacts and predictability of financial, accounting-based, and industrial factors (as well as corporate venturing) on survival-based success of newly incorporated firms in Spain.Design/methodology: Logistic regression is used for comparing the differences of factors in the prediction of future success after different time periods since the studying years (age 1, age 2, and age 3 respectively) in manufacturing and distributive sectors.Findings: Differences in predictability are observed between manufacturing and distributive sectors: it is obvious in distributive sector (rather than manufacturing sector) that liquidity, bank credit, trade credit, and concentration are positively related to success while entry rate is negatively related to success. In spite of that, some factors still show strong predictability in both two sectors. Firm size and profitability are the strongest positive factors, which are followed by corporate venturing and the growth of industrial operating revenues with positive and generally negative relationships to success separately. Besides, for some factors and variables frequently showing statistical significance, their impacts in the same age tend to be relatively stable. Practical implications:The findings of this paper can help to identify the predictability of different factors on the success of newly incorporated firms and catch the differences between manufacturing and distributive sectors.Originality/value: This paper enriches the empirical study of new firm success in Spain in depression and stagnant environment (because the observed years here are from 2009 to 2014); besides, the findings also contribute to the specific prediction study of manufacturing and distributive sectors.

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The Capital Structure Decisions of New Firms

Cited by 610 publications

References 24 publications

Signaling in Equity Crowdfunding

Signaling in Equity Crowdfunding

The Moderating Role of Bridging Ties between Risk-Taking, Proactivness and Performance: The Evidence from Iranian SMEs

The predictability of financial, accounting‐based, and industrial factors on the success of newly incorporated Spanish firms

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