The Determinants of Financial Structure: New Insights from Business Start‐ups

Huyghebaert, Nancy; Gucht, Linda M. Van De

doi:10.1111/j.1468-036x.2006.00287.x

Cited by 112 publications

(69 citation statements)

References 85 publications

(157 reference statements)

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“…The financial life cycle model incorporates elements of trade-off, agency (Jensen and Meckling, 1976), and pecking order theories (Myers, 1984;Myers and Majluf, 1984), and describes sources of finance typically advanced by funders at each stage of a firm's development. The commonly held view is that nascent and start-up firms have difficulty accessing external finance, as this is when problems related to information opacity are most severe (Huyghebaert and Van de Gucht, 2007). The most important sources of finance at this stage are personal savings of the firm owner, and finance from friends and family (Ullah and Taylor, 2007).…”

Section: Life Cycle Theory Of the Firmmentioning

confidence: 99%

An empirical investigation of the financial growth lifecycle

Bhaird

Lucey

2011

Jrnl of Small Bus Ente Dev

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Purpose -This paper empirically examines the financing of small and medium sized enterprises (SMEs) through a financial growth life cycle model. Reporting and analysing a large primary data set across six age categories, a number of statistical tests are conducted to test the financial growth life cycle model (Berger and Udell, 1998).Design/methodology/approach -Data in publicly available databases is generally unsuitable to examine the financial life cycle model, thus a questionnaire survey was employed to collect data. Because of the well-documented reticence of SME owners to reveal detailed financial information (Avery et al., 1998), data was requested in percentage form. This innovative methodology was successful, as 92 percent of respondents disclosed detailed financing data. A response rate of 42.6 percent across six industry sectors provided data to employ parametric techniques.Findings -Analysis of respondents' capital structures across age groups indicates distinct changes in sources of finance employed by firms over time. Financing choices are consistent with Myers's (1984) pecking order hypothesis, and the importance of profitability in financing SMEs is emphasised. Contrary to conventional wisdom, respondents in the youngest age category report a relatively high use of debt financing. This is explained by the provision of firm owners' personal assets to secure firm debt.Originality/value -The key contribution of this paper is to provide an empirical examination of the financial growth life cycle model by combining a number of statistical tests. This approach is significantly different to that traditionally adopted in empirical investigations of SME financing, which is to examine the applicability of theories developed in corporate finance on panel data.Additionally, it presents data on personal sources of finance employed by firm owners, which is typically not available, even in comprehensive secondary databases.

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Section: Life Cycle Theory Of the Firmmentioning

confidence: 99%

An empirical investigation of the financial growth lifecycle

Bhaird

Lucey

2011

Jrnl of Small Bus Ente Dev

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“…While some previous studies have analyzed the financial structure of start-ups (Storey, 1994a;Å stebro, 2002;Cassar, 2004;Huyghebaert and Van de Gucht, 2004), to our knowledge no large scale econometric evidence has so far been provided on the determinants of the extent of use of bank loans to finance the creation of NTBFs. The present study aims to fill the gap in the literature.…”

Section: Introductionmentioning

confidence: 96%

Funding Gaps? Access To Bank Loans By High-Tech Start-Ups

2006

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This paper aims to shed new light on start-up financing of new technology-based firms (NTBFs) and the existence of credit constraints that may negatively affect their activity. For this purpose, we analyze the different sources of start-up financing used by NTBFs and investigate several characteristics that may influence the extent of recourse to bank loans. In the empirical section, we consider a sample composed of 386 Italian NTBFs that operate both in manufacturing and services. We estimate double-censored tobit and bivariate tobit models so as to highlight the determinants of (i) the financial leverage, measured by the ratio of bank debt to total capital, and (ii) the amounts of personal capital and bank loans of firms at start-up, respectively. Our findings support the view that the credit market is imperfect and there exists a financing hierarchy. In fact, only a minority of firms resorts to outside financing, and especially to bank debt. In addition, the level of financial leverage is not random; it increases with an increase of the predicted amount of firms’ total initial capital, while it decreases with variables such as the number of owners and the work experience of founders that are indicative of greater personal wealth available to finance firms’ start-up. Lastly, the size of the bank loans obtained by firms generally is small and it is quite insensitive to demand-side factors that instead determine the amount of personal and total capital, with the notable exception of scale economies in the industry of the start-up. In other words, in accordance with the argument that credit to NTBFs is rationed, the loan supply curve is highly inelastic, even though not perfectly so. Copyright Springer 2007new technology-based firms, start-up financing, bank loans, credit rationing, G32, M13, O30,

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“…In other words, at different stages of the firm's growth cycle, different financing strategies are required. In general, because of the unique features that characterise SMEs during the start-up phase, such as informational opacity (Berger & Udell,1998), a lack of trading history (Cassar, 2004) and the high risk of failure (Huyghebaert & Van de Gucht, 2007), SMEs in this stage depend heavily on insider funding sources.…”

Section: Introductionmentioning

confidence: 99%

Small and Medium-Sized Enterprises Financing: A Review of Literature

Abdulsaleh¹,

Worthington²

2013

IJBM

163

122

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There is no doubt that access to finance is of crucial importance for the ongoing and sustainable growth and profitability of small and medium enterprises sector (SMEs) through its role in facilitating the creation of new businesses and nurturing the innovation process as well as promoting the growth and development of existing businesses, which in turn, boost national economic growth. The main motive of this paper is that SMEs significantly differ from large firms in terms of their financial decisions and behaviour. Hence, the purpose of this paper is to review the literature on the various financing sources of SMEs taking into account the effects of both SME characteristics and those of the owner-managers on SME financial behaviour.

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The Determinants of Financial Structure: New Insights from Business Start‐ups

Cited by 112 publications

References 85 publications

An empirical investigation of the financial growth lifecycle

An empirical investigation of the financial growth lifecycle

Funding Gaps? Access To Bank Loans By High-Tech Start-Ups

Small and Medium-Sized Enterprises Financing: A Review of Literature

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