Finance for SMEs: A U.K. Perspective

This paper provide an overview of recent trends in the financing of smaller businesses in the U.K. It refers in particular to the findings of a major recent programme of work in this area funded by the Economic and Social Research Council, in which the author participated. This programme included the first national survey to address these issues since the Bolton Report of 1971, as well as a range of projects covering the finance of ethnic businesses and hi-tech firms as well as the market for informal venture capital. On the basis of this work and of the results of more recent follow up surveyors it is concluded that the evidence for general equity or debt gaps in the U.K. is weak. If anything SME funding was too easy in the boom of the late 1980s. It is argued that consideration could be given to the promotion through seedcorn funding of SME co-operative or mutual guarantee schemes to reduce information asymmetry in U.K. credit markets.     

The capital structure and investment decisions of the small owner-managed firm: Some exploratory issues

In the burgeoning literature on small firm financing, the problem of underidentification in respect to the supply of, and demand for, capital has not been fully resolved. In an attempt to progress this issue, the current paper looks at some of the issues influencing the demand for finance in small firms which are owner-managed. The paper is primarily exploratory in nature and argues that a greater emphasis might usefully be placed on the cost of capital dimension in future research into small business financing. In particular, it is suggested that where the objective of an owner-manager is to maintain control of the firm, interdependent investment and financing strategies may be chosen to control the small firms cost of capital. This in turn indicates that the tendency for some small firms to invest sub-optimally and exhibit slower than average growth may not be primarily determined by limitations on their supplies of finance. On the demand side, it may well be that in addition to equity aversion, a suboptimal capital structure decision is made in the form of a reduced demand for debt. In other words, given the level of equity that an owner-manager chooses, debt may not be fully expanded to the capacity limit consistent with value maximisation.     

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.     

The Provision of Finance to Innovation: A Survey Conducted among Italian Technology-based Small Firms

Financial constraints to the development of innovation are often considered one of the main impediments to high-technology firms seeking to expand and grow. In particular this is the case of small and medium size high-tech firms. In the U.S. and the U.K. a variety of sources of finance are available to the start-ups of innovative firms; in the other European countries, and particularly in Italy, these means are still uncommon so that the development of technology is often prevented. This paper, based on an empirical analysis on a survey of 46 small high-tech Italian firms, aims at exploring the problems experienced by small businesses in gaining access to debt and equity finance. The results highlight that traditional financial sources are inadequate to finance innovative projects. The questioned firms rely mainly on personal finance, and secondly on short term bank debt; they are truly involved in maintaining control over the firm activities and are willing to issue outside equity only if the new investors also provide non financial competencies. Among the 46 interviewed firms, only 10 are willing to be listed in the future on small firms' stock markets.     

The Influence of Funding Approaches,Growth Expectations,and Industry Gender Distribution on High‐Growth Women Entrepreneurs

This study examines three key aspects of entrepreneurship associated with women business owners and their ability to achieve high growth: debt versus equity financing, growth expectations, and industry gender distribution. We present a number of theoretical lenses spanning disciplines such as gender studies, entrepreneurship, social psychology, and finance. Using longitudinal data from U.S. startups over an eight‐year period, our research reveals a number of interesting findings. We find that, proportionally, high‐growth women entrepreneurs are more likely to finance their growth with personal and business equity funding. Additionally, women‐owned firms in “feminine industries” are more likely to achieve high growth than women‐owned firms in “non‐feminine industries.”     

Agency costs,institutions, learning,and taxation in venture capital contracting

This paper introduces a data set on forms of finance used in 12,363 Canadian and US venture capital (VC) and private equity financings of Canadian entrepreneurial firms from 1991 to 2003. The data comprise different types of venture capital institutions, including corporate, limited partnership, government, and labour-sponsored funds as well as US funds that invest in Canadian entrepreneurial firms. Unlike prior work with US venture capitalists financing US entrepreneurial firms, the data herein indicate that convertible preferred equity has never been the most frequently used form of finance for either US or Canadian venture capitalists financing Canadian entrepreneurial firms, regardless of the definition of the term ‘venture capital’. A syndication example and a simple theoretical framework are provided to show the nonrobustness of prior theoretical work on optimal financial contracts in venture capital finance. Multivariate empirical analyses herein indicate that (1) security design is a response to expected agency problems, (2) capital gains taxation affects contracts, (3) there are trends in the use of different contracts which can be interpreted as learning, and (4) market conditions affect contracts.     

Corporate Governance and the Cost of Capital: An International Study

This study shows that firms with good corporate governance are consistently associated with both lower cost of equity and cost of debt capital in an international setting. The association between corporate governance and the cost of equity is more pronounced in countries with strong legal systems, extensive disclosure practices, and good government quality. However, the relation between corporate governance and the cost of debt is stronger in countries characterized by weak legal protection, low transparency, and poor government quality. The differential relations can be attributed to asymmetric payoffs received by creditors and shareholders.     

Risk and Return in the 20th and 21st Centuries

The single most important contemporary issue in finance is the equity risk premium. This drives future equity returns, and is the key determinant of the cost of capital. The risk premium – the expected reward for bearing the risk of investing in equities, rather than in low-risk investments such as bills or bonds – is usually estimated from historical data. This article starts by summarising new evidence on historical returns in twelve major world markets from the authors' recent book, 'The Millennium Book: A Century of Investment Returns'. The authors show that the historical equity risk premium has been lower than previously believed, and argue that the future risk premium is likely to be lower still. They discuss what this implies for the cost of capital, stock market values, and companies' target rates of return. They suggest that many companies are seeking too high a rate of return and thus run the risk of under-investing.     

Bypassing the financial growth cycle: Evidence from Capital Pool Companies

To close a putative equity gap, Canadian regulators implemented the Capital Pool Company program, which enables small firms to directly access the stock market, thus bypassing the conventional growth cycle. Capital Pool Companies spawned more than half of the initial issues on Canadian stock markets between 1995 and 2001. Three postulates underlie this program: 1) a significant number of profitable companies cannot be financed by conventional tools, 2) small firms can grow and succeed without the full range of services offered by conventional funding providers, and 3) individual investors are able to correctly price the stocks issued by small, generally young firms. Our analysis of close to 450 issuers resulting from this program fails to confirm any of these postulates. As a public policy, the development of mechanisms intended to facilitate the entry of emerging companies on the stock market requires serious reexamination. Our results confirm the critical role of conventional funding providers in small business finance.     

Equity crowdfunding: First resort or last resort?

Prior research has focused on the factors that affect funding success on equity crowdfunding platforms, but a detailed understanding of the factors that drive firms to search for equity crowdfunding in the first place is lacking. Drawing on the pecking order theory, we argue that firms list on equity crowdfunding platforms as a “last resort”—that is, when they lack internal funds and additional debt capacity. In line with the pecking order theory, the empirical evidence shows that firms listed on equity crowdfunding platforms are less profitable, more often have excessive debt levels, and have more intangible assets than matched firms not listed on these platforms. We discuss the implications for theory and practice.     

我国制药行业上市公司资本结构的实证分析

2001年以来,医疗制度改革、GMP达标、加入WTO及OTC市场竞争的加剧等,使我国制药企业的产业环境发生了巨大变化,进而对制药企业的融资策略及资本结构决策行为也构成影响。在此背景下,本文以2002年深沪两市制药行业上市公司为样本,对影响我国制药行业上市公司资本结构的主要因素进行了实证分析,结果表明:增长期权对债务筹集能力显著正相关;销售费用融资主要来源于长期资本;规模对公司债务筹资能力具有正效应;公司的资产担保价值与长期负债比率正相关;产生内部资源的能力与短期债务间存在相互替代性;成长性、经营风险、非债务税盾和投资对资本结构的影响不大。     

Drivers of the cost of capital: The joint role of non-financial metrics

Recent marketing studies suggest that non-financial metrics, such as customer satisfaction and brand value, help explain the variation in the cost of equity and the cost of debt. These studies typically focus on only one non-financial metric and one component of capital cost. In this study, we broaden the understanding of the relevance of non-financial metrics to the cost of capital. We investigate the joint role of customer satisfaction, brand value, and corporate reputation for stock market beta and credit ratings, which reflect variation in equity and debt risk premiums across firms. In addition to the joint direct influence of these metrics on capital cost, we also study their interaction effects. We develop a conceptual model to explain the effects on capital costs and test the resulting hypotheses in a broad sample of 344 firms from diverse industries using data from the 1991–2006 period.     

Put Your Money Where Your Mouth Is: A Model of Certification with Informed Finance

We consider how funding from informed investors such as banks certifies the quality of the recipient firms to investors uninformed of it. We show that informed finance leads to full separation of firms’ quality types, with a larger quantity of it certifying a better quality. Moreover, the increase in the market value of the recipient firm is a convex, increasing function of the quantity of informed finance that it obtains. Lastly, firms with attribute X derive a greater value from the certification service of informed finance than those without it if the distribution of firms’ quality conditional on X is second‐order stochastically dominated by that conditional on its absence. The informed finance could be commercial bank loans or the purchase of a firm's equity preceding its IPO by renowned investment banks.     

行业内上市公司债务权益选择中的羊群行为——来自我国上市公司的经验证据

传统的资本结构理论研究主要集中考察行业间公司资本结构的决策行为,而较少考察行业内公司资本结构的决策模式.文章从公司管理者的心理活动和行为模式出发,实证考察我国行业内上市公司债务权益选择中的羊群行为.实证研究结果发现,在控制了公司基本特征对债务权益比的影响后,10个样本行业中有7个行业在债务权益选择中存在显著的羊群行为,债务权益比的行业均值对行业内上市公司的债务权益比产生显著的正向影响.     

A Study on Firms with Negative Book Value of Equity

This paper studies the puzzling negative book equity phenomenon among US public firms. Our evidence suggests that negative book equity firms exhibit heterogeneous characteristics. We show that a great portion of these firms, while operating at excessive capital structure with leverage ratio over 100%, are financially and operationally healthy. These healthy negative book equity firms increase their debt primarily motived by a need for funds to fulfill investment demand. We also find that the off‐balance sheet intangible assets and quality of intangible assets play an important role in determining the true debt capacity of these firms.     

我国上市公司股权融资过度偏好的有限理性行为分析

我国上市公司具有典型的过度股权融资偏好,按照行为金融学的基本原理,我国上市公司存在股权融资过度偏好的种种非理性因素.其直接原因是我国上市公司股权融资成本偏低,间接原因则包括公司治理结构不合理、公司经理层的个人非理性行为、政策导向与制度缺陷、资本市场不完善等因素.过度偏好股权融资的行为会扭曲证券市场的资源配置功能.     

Option implied cost of equity and its properties

The estimation of the cost of equity capital (COE) is one of the most important tasks in financial management. Existing approaches compute the COE using historical data, i.e. they are backward‐looking methods. This study derives a method to calculate forward‐looking estimates of the COE using the current market prices of stocks and stock options. Our estimates of the COE reflect the expectation of the market investors about the COE during the life of the investment project. We test empirically our method and compare it with the Fama/French (1993) three‐factor model for the S&P 100 firms. The empirical results indicate that our COE estimates (1) are plausible and stable over the years as required by appropriate discount rates for capital budgeting, (2) yield an equity risk premium close to the market equity risk premium reported by Fama E. F. and French K. R. (2002), (3) generate strong return‐risk relationships, and (4) are significantly related with investor sentiment. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29: 599–629, 2009     

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.     

Acquisition of Additional Equity Capital by Small Firms – Findings from the National Survey of Small Business Finances

While the importance of venture capital to the growth of small firms has been widely discussed during the past decade, little is known about the acquisition of additional equity capital, especially internal equity capital, by the majority of small firms in the U.S. This paper utilizes the information collected in the Federal Reserve Board’s 1993 and 1998 Small Business Finance Surveys to investigate the acquisition of additional equity capital by small firms. While the importance of public issue markets and venture capital investment in promoting the growth of small dynamic firms cannot be denied, the importance of external equity capital seems to be overstated. Only a very small number of small firms acquired additional external equity capital. It is the internal equity capital, not external, equity, that is one of the major financing sources for most small firms. We found that younger, lower quality firms were more likely to acquire additional internal equity capital than other firms. There appeared to be a “pecking order” of borrowing from internal sources to traditional lenders to non-traditional lenders. In addition, internal equity capital and debt acquired from traditional and non-traditional lenders appeared to be complementary financial resources.     

金融部门人力资本配置与实体企业金融资产投资

在实体经济“冷”与虚拟经济“热”的大背景下,中国实体企业投资于金融资产的比例快速提升,经济金融化格局正在加速形成。本文试图从金融部门的人力资本配置视角对实体企业金融资产配置的形成逻辑进行诠释。本文以人均受教育年限来衡量金融部门的人力资本配置,采用2008年经济普查微观数据库的数据构造地级市层面的度量指标,并匹配至2009—2018年非金融类上市公司进行实证检验。计量结果显示,金融部门的人力资本水平越高,实体企业金融资产配置越多,且该效应在信息不对称企业中尤为显著。进一步的机制检验发现,在金融部门人力资本提高的条件下,实体企业债务期限显著缩短,具体表现为短期负债增加而长期负债减少。本文研究结论表明,人力资本偏向金融部门增强了其在信贷合约中的市场势力,信贷供给短期化是实体企业金融化的重要原因之一。