The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle

Abstract

We examine the economics of financing small business in private equity and debt markets. Firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle. We show the sources of small business finance, and how capital structure varies with firm size and age. The interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment. We also analyze a number of research and policy issues, review the literature, and suggest topics for future research.

The influence of gender on financial decisions: evidence from small start-up firms in spain

“…Normally, longer terms of debt maturity lead to lower interest rates [7] and larger returns. On the other hand, we observe a positive effect of debt level, fi rm size and solvency ratio on the cost of debt.…”

“…Another infl uential theory is the fi nancial growth cycle theory [7]. According to this theory, there are several variables that infl uence the level of information asymmetry in companies, and the age and the size are amongst the most important ones.…”

“…Several papers, among which is the one by Berger and Udell [7], establish the explanation that companies fi nance themselves in different ways depending on the phase they occupy in their fi nancial growth cycle. The main sources of external fi nancing for small start-up fi rms are commercial credits and (short-term) bank loans.…”

“…The mean of the cost of debt (COSTD) is 3.5%. It must be highlighted that the sample examined includes micro and small fi rms that usually get their funds from bank credit [7], their own fi nance or from family and friends and, especially, microcredits. The mean of the debt maturity (MATUR) is 21.3%, confi rming that these fi rms largely employ short term debt.…”

The impacts of fundraising periods and geographic distance on financing music production via crowdfunding in Brazil

“…In finance, investors tend to demand relatively more information from embryonic businesses, given the high level of risk when dealing with new businesses (Berger and Udell 1998). Investors in startups also tend to prefer businesses that are physically closer, as they are motivated by the wish to reduce the information asymmetry (Lee et al 2008).…”