Capital structure in new technology-based firms: Evidence from the Irish software sector |
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| Affiliation: | 1. Auckland University of Technology, Private Bag 92006, Auckland, New Zealand;2. Department of Finance, Auckland University of Technology, Private Bag 92006, Auckland 1142, New Zealand;3. Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA;1. St. John''s University, Queens, NY, United States;2. Marshall Management Services, Long Island, NY, United States;1. Sharif University of Technology, Tehran, Iran;2. Suffolk University, Boston, MA, United States of America;1. Department of Finance, National Sun Yat-sen University, 70 Lienhai Rd., Kaohsiung 80424, Taiwan, ROC;2. Department of Accounting and Information Technology, National Chung Cheng University, 168 University Road, Minhsiung Township, Chiayi County 62102, Taiwan, ROC;3. Department of Accounting and Information Technology, National Chung Cheng University, 168 University Road, Minhsiung Township, Chiayi County 62102, Taiwan, ROC;4. Department of Finance and Business Law, California State University, Fresno, 5245 N. Backer Ave., Fresno, CA 93740, USA |
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| Abstract: | Using a sample of 117 Irish software companies, we examine the capital structure of new technology-based firms. Consistent with the findings on financing for other small businesses, internal funds are the most important source of funding in new technology-based firms. However, in apparent contradiction to the pecking order hypothesis, the use of debt is rare and equity financing is the prime source of external finance. By questioning chief executive officers via survey on their perceptions and opinions on various financing issues, we are able to conclude that in many cases software firm founders prefer outside equity to debt. The dearth of debt in the capital structure of new technology-based firms cannot be wholly explained by financing constraints due to information asymmetries in the banking sector. |
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