Financing Small Technology-Based Companies: The Relationship between Familiarity with Capital and Ability to Price and Negotiate Investment

This study examines the financing of small technology-based firms. Specifically, the study investigates the familiarity of owners of small technology-based firms with alternative forms of capital by stage of development and in comparison with their ability to price and negotiate external equity and debt investment. The results indicate that owners are most familiar with traditional sources of capital, somewhat less familiar with capital commonly used to fund growth, and least familiar with government funding initiatives. Owners believe that they are better able to negotiate than to price equity and debt. The perceived ability to negotiate and price externally funded investments increases as the firm matures through the various stages of development.     

Capital structure decision making: A model for family business

Most theoretical and empirical studies of capital structure focus on public corporations. Only a limited number of studies on capital structure have been conducted on small-to-medium size enterprises (SMEs), and this deficiency is particularly evident in investigations into factors that influence funding decisions of family business owners.Theory indicates that there is a complex array of factors that influence SME owner-managers' financing decisions. Recent family business literature suggests that these processes are influenced by firm owners' attitudes toward the utility of debt as a form of funding as moderated by external environmental conditions (e.g., financial and market considerations).A number of other factors have been shown to influence financing decisions including culture; entrepreneurial characteristics; entrepreneurs' prior experiences in capital structure; business goals; business life-cycle issues; preferred ownership structures; views regarding control, debt–equity ratios, and short- vs. long-term debt; age and size of the firm; sources of funding for growth; attitudes toward debt financing; issues relating to independence and control; and perceived risk and attitudes toward personal risk.Although these factors have been identified, until now there does not appear to have been any attempts to develop empirically-based models that show relationships between these factors and family business owners' financing decisions. Utilizing theories derived from divergent disciplines, this study develops an empirically tested structural equation model of financing antecedents of family businesses. Participants of our study involved a random sample of 5000 business owners who were mailed a 250-item Australian Family and Private Business questionnaire developed specifically for this investigation.Notably, our findings reveal that firm size, family control, business planning, and business objectives are significantly associated with debt. Small family businesses and owners who do not have formal planning processes in place tend to rely on family loans as a source of finance. However, family businesses in the service industry (e.g., retailers and wholesalers) are less likely to use family loans as are those owners who are planning to achieve growth through new products or process development. Use of capital and retained profits is likely for family businesses planning to achieve growth through an increase in sales but less is likely for family businesses in the manufacturing sector and lifestyle firms. In addition, debt and family loans are negatively related to capital and retained profits. Equity is a consideration for owners of large businesses, young firms, and owners who plan to achieve growth through increasing profit margins. However, equity is less likely to be a consideration for older family business owners and owners who have a preference for retaining family control.Our findings suggest that the interplay between multiple social, family, and financial factors is complex. In addition, our findings indicate the importance of utilizing theories that also help to explain behavioral factors (e.g., owners' needs to be in control) that affect financial structure decision-making processes. Practitioners and researchers should consider the dynamic interplay among business characteristics (e.g., size or industry), behavioral aspects of business financing (e.g., business objectives), and financial factors (e.g., gearing levels) when working with and researching family enterprises.     

Firm exit after distress: differentiating between bankruptcy, voluntary liquidation and M&A

This paper examines firm-level determinants of mature firm exits after economic distress. Using nested logit models and a sample of 6,118 distress-related exits in Belgium, we analyze the type of exit that distressed firms experience. We show that 41% of the firms in our sample exit through a court driven exit procedure (mainly bankruptcy), 44% are voluntarily liquidated and 14% are acquired, merged or split (hereafter M&A). Distressed firm exit follows two distinct stages. First, a firm either decides to exit voluntarily or is forced into bankruptcy, which is the least efficient exit strategy. Compared to bankruptcy, the probability of a voluntary exit increases with higher levels of cash, lower leverage, holding no secured debt and being embedded in a group. If a firm exits voluntarily, it enters a second stage and decides either to exit through voluntary liquidation or through a M&A. Conditional on not going bankrupt, the likelihood of voluntary liquidation compared to M&A increases with higher levels of cash or secured debt, with smaller size and with an absence of group relations. We contribute to the firm exit literature by jointly analyzing three exit types and showing that bankruptcy and voluntary liquidation are fundamentally different exit routes. While voluntary liquidation is an important exit route for distressed firms, most previous studies have failed to distinguish between bankruptcy and liquidation. We hence contribute to the exit literature by showing that bankruptcy, voluntary liquidation and M&A are fundamentally distinct exit routes for distressed firms, driven by different firm level characteristics and following a two-stage process.     

人力资本观念变革与财务理论体系创新

人力资本所有者(包括核心人力资本所有者与一般人力资本所有者)在知识经济时代将取得与物质资本所有者平等的地位,甚至胜过物质资本所有者,并将与物质资本所有者共同分享企业剩余索取权,从而使人力资本所有者的激励与约束成为企业治理的关键问题。人力资本观念变革促使企业治理理论产生深刻变化,而财务治理是企业治理的核心,因而人力资本观念的变革必将引起包含财务治理在内的财务理论体系的深刻变化。“以人为本”的思想向财务理论全方位渗透,触发了“人本财务”范畴的提出,进而推动财务理论体系的创新。     

Counterfeiting and firm survival. Do international trade activities matter?

Counterfeiting is a phenomenon that threatens global competition and economic growth, and it is well-known that the presence of illicit fake products unfairly altering competition, can affect firm profitability and even, in some cases, force owners to close their businesses or declare bankruptcy. By introducing three new complementary measures of counterfeiting, this study examines the intra- and inter-industry effects of counterfeiting on Italian firm survival taking into consideration the differing degree of a firm’s involvement in international trade activities. Overall, the results of micro-econometric analysis indicate that the probability of a genuine firm exiting the market increases when the effect flows from the “fake” sector to its upstream genuine suppliers; vice versa, it decreases when the effect flows from the “fake” sector to its downstream genuine customers. However, when classifying firms as trading and no trading firms, we found that these results are confirmed only for the latter. Our evidence, which is robust to different estimation methods, provides room for policy and manager interventions.     

RELIABILITY AND REGULATION IN PRICING PUBLIC UTILITY SERVICE

The principal question addressed in this paper concerns the optimal price profile for a regulated public utility where demand is stochastic. Through the introduction of rationing costs and a rate-of-return constraint, marginal revenue will be approximately equated to the cost associated with satisfying the last unit of consumers’demand. This has significant implications for capacity expansion. Namely, capacity is added to keep the risk of failure minimal. As a result, to the extent that the associated costs are higher for the last unit of capacity, a higher marginal revenue and hence price will result. That is, if the marginal unit of capacity has a high operating and delivery cost and low capital cost with high reliability and consequent high total cost (e.g., an internal combustion peaking unit), the indicated result follows. Consequently, there is a direct trade off between the level of risk of failure and marginal revenue. This provides a rationalization for the existence of the price differential between firm and interruptible customers. Finally, if the firm is contrained to earn a fair return on its capital investment, it will set prices to favor the consumers generating the expansion in capacity.     

Financing the entrepreneurial decision: an empirical approach using experimental data on risk attitudes

This paper empirically examines the role of personal capital in the entry decision for US high-technology entrepreneurs. Our innovative approach utilizes both survey data and data from economics-based field experiments, which enables us to elicit and control for the risk attitudes of individual entrepreneurs in the study. Empirical findings suggest that (1) Small Business Innovation Research (SBIR) grants, (2) credit cards, and (3) earnings from a salaried job are among the most important sources of funds for entrepreneurs in their decision to start up a firm. Our findings support Evans and Jovanovic (Journal of Political Economy 97(4):808–827, 1989) in that wealth appears to have a positive impact on the probability of starting up a firm, even when controlling for risk attitudes; however, risk attitudes do not appear to have a strong role to play in the entry decision overall. Policy implications suggest that firm start-ups are dependent on access to capital in both initial and early stages of development, and that government funding, including SBIR grants, is an important source of capital for potential and nascent high-technology entrepreneurs.     

公司治理结构的多变性

公司治理结构是由某一特定具体公司治理系统的要素--物质资本所有者与人力资本所有者竞争协同谈判的结果,它受市场环境影响,随着企业发展阶段不同而动态演进。模式本身不是一成不变的,它必然呈现多样性,因此立法及实践中应为公司治理结构的多元化提供必要的空间。     

The geographic determinants of bankruptcy: evidence from Switzerland

This paper examines the geographic determinants of firm bankruptcy. We employ hazard rate models to study the bankruptcy risk of a firm, allowing for time-varying covariates. Based on a large sample from all geographic areas and the major sectors of the Swiss economy, we find the following main results: (1) Bankruptcy rates tend to be lower in the central municipalities of agglomerations; (2) bankruptcy rates are lower in regions with favorable business conditions (where corporate taxes and unemployment are low and public investment is high); (3) private taxes and public spending at the local level have little impact on bankruptcy rates.     

Limiting Laissez Faire Profits: The Financial Implications

Traditional corporate finance endorses the principle of stockholder wealth maximization as the purpose of business. In light of recent scandals and legislation, businesses are increasingly expected to use financial resources in a manner which benefits society and not just the owners of the firm. This imputation of a corporate soul will necessarily reduce investor returns, which has at least two major financial implications for the firm and the economy. The first is that it may cause investors to change their required rates of return and thereby change the amount of capital available to firms (in␣particular), and the economy (in general). The second is that it may implicitly replace equity with debt in the capital structure of firms, with all that implies for financing and corporate governance. The purpose of this article is to examine these implications and evaluate their sometimes counterintuitive consequences.     

How Do SMEs with Single and Multiple Owners Finance Their Operations Differently? Empirical Evidence from China

We study the impact of firm‐level characteristics on the capital structures of private small and medium‐sized enterprises (SMEs) as well as the differences between the capital structures adopted by SMEs with single and multiple owners in China. Our findings highlight the limited use of asset‐based financing by Chinese SMEs. We also find that the propensity of SMEs with single‐owners to use external debt was significantly less than those with multiple owners. Furthermore, our findings suggest that single‐owned firms are subject to a more constrained pecking order than those with multiple owners. © 2013 Wiley Periodicals, Inc.     

Scale economies,entry, and welfare

This study shows how scale economies, initial size differences among firms, potential competition, and adjustment costs may influence the entry of firms into a dynamic oligopoly. It also examines the effects of these factors on the final size distribution of firms in an industry, and on the welfare levels of consumers and producers. We find that low to moderate scale economies are insufficient for Cournot-Nash competition to drive small firms from the market. Only when scale economies are quite high will the distribution of firm sizes become degenerate. Potential competition and the size of incumbent firms' capital stocks are additional barriers to entry. The welfare conclusion is that there may be a government role to preserve potential competition, but also to dissuade small firms from entering certain markets where there are economies of scale.     

The Relation between Abnormal Main Fund Movements and Subsequent Earnings Management: Political Costs and Political Connections

Movement of major fund1 flows has great impact on capital markets, especially in China. This study investigates the relationship between abnormal main fund movements and firm’s earnings management behavior, specifically, whether the abnormal main fund movements cause firms to keep a low profile for “self-protection” from being detected by the government. The empirical results of this study suggest that: (1) The mandatory disclosure of the “Top-ten circulating stockholders” requirement does not only reduce information asymmetry between investors and listed firms, but also strengthens and improves the efficiency of related government regulations in detecting disclosure of false information. This, in turn, increases the risk of being detected for firms with earnings management activities. (2) After abnormal main fund movements, relevant firms significantly reduce the level of earnings management to avoid attention from the public and regulatory agencies. (3) Using political connections as a proxy for the “shield effect” to mask political cost, we show that the negative relation between abnormal main fund movements and earnings management exists only for the subsample of firms without political connections. This paper provides a new angle for political cost study, and suggests that traditional political cost hypothesis should be further generalized.     

社会损害赔偿责任的财务保障机制

企业的产品及其经营活动可能会给社会带来重大损害,由于有限责任制,这些损害可能因企业破产等原因无法得到赔偿。保障社会损害得到应有的赔偿不仅能够弥补受害者的损失,而且能够促进企业更谨慎地防止社会损害的发生。社会损害赔偿的财务保障机制不同,企业为防止损害发生所采取的谨慎程度与企业的资本结构也有所不同。本文分析不同的财务保障机制对谨慎程度与资本结构的影响。     

How do bankruptcy laws affect entrepreneurship development around the world?

How do bankruptcy laws as formal institutions affect entrepreneurship development around the world? Do entrepreneur-friendly bankruptcy laws encourage more entrepreneurship development at a societal level? We posit that if bankrupt entrepreneurs are excessively punished for failure, they may give up potentially high-return but inherently high-risk opportunities to start new businesses. Amassing a cross-country database from 29 countries spanning 19 years (1990-2008), we find that lenient, entrepreneur-friendly bankruptcy laws are significantly correlated with the level of entrepreneurship development as measured by the rate of new firm entry.     

美国银行业破产模式变化趋势及其启示

在美国,一般企业的破产主要表现为兼并与收购,遵循的是一种市场驱动的事后破产模式:而商业银行的破产过程则由金融监管部门主导,表现为一种由行政管制驱动的事前破产模式.这两种破产模式在破产适用法规、破产目标、主导者、破产程序等方面存在异同.目前由于市场竞争的发展和银行公司治理结构的改变,美国银行业兼并收购开始盛行,有向事后破产模式转变的趋势.中国银行业的公司治理和银行破产法制定亦可从中得到若干重要启示.     

Impact of founder experience on exit intentions

Entrepreneurial exit—the process by which the founders of privately held firms leave the firm they helped to create (DeTienne, J Bus Venturing, 2010)—is an important component of the entrepreneurial process, yet researchers know very little about it. We examine entrepreneurs’ intentions to exit by a range of possible exit paths [acquisition, initial public offering (IPO), family succession, employee buyout, independent sale, liquidation], building on Gimeno et al.’s (Adm Sci Q 42:750–783, 1997) notion of thresholds as they apply to a simple survival/exit dichotomy, and expanding this to include different intended paths of exit. Our results indicate that entrepreneurs intend to pursue different exit paths based on previous entrepreneurial experience, industry experience, age, and education level. Our findings provide preliminary evidence that differences between intended exit and failure are underspecified in the literature, since exit consists of many unique paths. Also, in support of threshold theory, we find that the intended exit path is driven by factors other than firm performance.     

Religion,social capital and business bankruptcy in the United States, 1921–1932

We consider the value of social capital that derives from membership in a church. American states with larger churchgoing populations had lower business bankruptcy rates from 1921 to 1932, and states in which the churchgoing population was concentrated in few churches had business bankruptcy rates that were lower still. Both voluntary and involuntary bankruptcy were lower in states with higher church membership. The evidence suggests that church membership acted on bankruptcy through a safety net mechanism and not solely through indicating a preference for honouring commitment.     

Individual responses to firm failure: Appraisals,grief, and the influence of prior failure experience

This paper provides a systematic assessment of how entrepreneurs react to firm failure. We use appraisal theory as an overarching theoretical framework and hypothesize that the more the failure experience is appraised as stressful in terms of its implications for harm or loss, the greater the feelings of grief. To test this hypothesis we developed a unique database of entrepreneurs who recently filed for firm bankruptcy. Our results support that there is great variation in responses to firm failure, and we provide theoretically valid explanations to why this is the case. These findings have substantial implications for how scholars conceive and theorize about entrepreneurial failure.