Testing trade-off and pecking order theories financing SMEs

This paper explores two of the most important theories behind financial policy in Small- and Medium-Sized Enterprises (SMEs), namely, the pecking order and the trade-off theories. Panel data methodology is used to test empirical hypotheses on a sample of 3,569 Spanish SMEs over a 10-year period dating from 1995 to 2004. Results suggest that both theoretical models help to explain SME capital structure. However, despite finding clear evidence that SMEs follow a funding source hierarchy (pecking order model), our results reveal that greater trust is placed in SMEs that aim to reach target or optimum leverage (trade-off model). This remains true even when SMEs take a long time to reach this level, due to the high transaction costs they have to face. Non-debt tax shields (NDTS), growth opportunities and internal resources all seem to play an important role in determining SME capital structure. Both size and age are also found to be significant factors. Moreover, the empirical evidence obtained confirms that SMEs clearly behave differently to large firms where financing is concerned.

Is the influence of the industrial district on international activities being eroded by globalization?: Evidence from a traditional manufacturing industry

This study provides insight into the impact of industrial districts on the international activities of firms, in the particular context of one traditional manufacturing industry: the Spanish home-textile industry. Using a sample of 128 manufacturing firms, the paper shows how location influences the timing and levels of exports and imports. Moreover, our results demonstrate how these influences have been diluted in recent years as the home-textile industry becomes more involved in the global arena. Our findings challenge some key arguments exploring the advantages of the district in the international activities of firms; in particular, first, in questioning the capacity of the district to prevent international sourcing, and second, its vulnerability to the threats created by the growing integration of the world economy.     

Testing Gibrat’s Law for Small, Young and Innovating Firms

This article analyses whether small, young, and innovating firms have experienced a greater employment growth than other Spanish firms over the period 1990–2000. The study draws upon a sample of 1272 manufacturing firms in which only 967 of the firms survived for the entire ten year period. The analyses test Gibrat’s law, both by least squares and by utilizing the procedure proposed by Heckman in which a probit survival equation is first estimated to correct for sample selection bias. Two estimators correcting for selection bias are utilized: one that incorporates the inverse Mill’s ratio and the other that employs maximum likelihood methods. All the results reject Gibrat’s law and support the proposition that small firms have grown larger. Additionally, the results show that old firms grow less than young ones, and innovating activity – both process and product – is a strong positive factor in the firm’s survival and its employment growth.     

National telecommunications planning in Brazil

During the past 15 years Brazil has undergone a process of rapid modernization in its telecommunications. Starting from a chaotic situation, institutional foundations were established and an ambitious development programme carried out. A fundamental piece of this programme was a planning process that proved to be flexible and adequate to handle the social and economic disparities of the country. The policies that have emerged from the planning process were implemented and provided good economic results and satisfaction to customers.     

Category management and consumer choice

This paper shows the results of an exploratory analysis of the structure of a complex product category: Wine. In complex categories, a usual strategy of consumers is the partitioning of alternatives into homogeneous subsets and the sequential eliminations of subsets until a product/brand is chosen from among few homogeneous alternatives in the last subset. To identify if there is such a kind of strategy and the product attributes involved is of great interest for the retailer. After a discussion of the different modelling alternatives of the choice process, the authors provide an application of the additive trees (ADDTREE) model to explore the hierarchical structure. The ADDTREE results provide a first overview of the competitive market structure of the wine category: competition becomes more intense as the wine category is partitioned by, first, the type of wine criteria and, second, the designation of origin (DO) criteria.