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Several factors affect the capital structure of start-ups. In this study, we compare the capital structure choices of accelerated and non-accelerated start-ups to evaluate the role of accelerated programmes on the capital structure decisions for start-ups. Using a comprehensive database provided by Emory University, we find that accelerated start-ups have higher external equity ratios than non-accelerated start-ups, after accounting for firm-specific differences and unobserved start-ups factors, particularly when the economic conditions deteriorate. We also confirm that accelerated start-ups raise more funding through philanthropic investors, but this effect disappears when we control for firm fixed effects. These results suggest that accelerators provide informative signals about the quality of the venture, albeit only to external equity investors, and particularly during recession periods. Our findings have implications for a better understanding of the role of asymmetric information and business cycles in capital structure decisions for accelerated start-ups. Plain English Summary: Accelerator programmes aid venture finance. But which sources are most likely to invest in accelerated start-ups, and how do business cycle conditions affect this relationship? Using a comprehensive database provided by Emory University, we identify the financing sources of start-ups (debt, external equity, and philanthropic capital) for the years prior to, during, and after successfully and unsuccessfully applying for an acceleration programme. We find that accelerated start-ups have higher external equity ratios than non-accelerated start-ups, particularly when economic conditions deteriorate. These results suggest that accelerator programmes provide informative signals about the quality of the venture, albeit only to external equity investors, and particularly during recession periods. The principal implication of this study is that it could be advisable for entrepreneurs who are planning to raise equity from external investors to first apply for accelerated programmes in order to improve their chance of obtaining external equity, especially during economic downturns. [ABSTRACT FROM AUTHOR]

Despite the increasing interest in single family offices (SFOs) as an investment owned by an entrepreneurial family, research on SFOs is still in its infancy. In particular, little is known about the capital structures of SFOs or the roots of SFO heterogeneity regarding financial decisions. By drawing on a hand-collected sample of 104 SFOs and private equity (PE) firms, we compare the financing choices of these two investor types in the context of direct entrepreneurial investments (DEIs). Our data thereby provide empirical evidence that SFOs are less likely to raise debt than PE firms, suggesting that SFOs follow pecking-order theory. Regarding the heterogeneity of the financial decisions of SFOs, our data indicate that the relationship between SFOs and debt financing is reinforced by the idiosyncrasies of entrepreneurial families, such as higher levels of owner management and a higher firm age. Surprisingly, our data do not support a moderating effect for the emphasis placed on socioemotional wealth (SEW). [ABSTRACT FROM AUTHOR]

Nonprofit firms can be multi-stakeholder organizations, in which employees, clients, volunteers, public institutions, and funders can have formal or informal power to affect corporate strategy. This paper focuses on nonprofit firms' orientation toward clients and investigates its role in shaping capital structure. We first develop a theoretical framework and derive conditions under which the relationship between leverage and client orientation—measured by how much nonprofit firms weigh clients' utility relative to earnings—is either positive or first negative and then positive. We then provide an empirical analysis of social cooperatives in the Italian social care sector and find a negative relationship between leverage and client orientation—proxied by the ratio of voluntary workers to total workforce. [ABSTRACT FROM AUTHOR]

Based on a unique dataset of Italian small- and medium-sized enterprises (SMEs) over the 2006–2016 period, we investigate how the recent global financial crisis impacted SMEs' capital structure decisions and their determinants. Our results show that credit supply shocks negatively impacted Italian SMEs' leverage. During and after the crisis, Italian SMEs significantly decreased their leverage, particularly their short-term debt exposure, relative to the pre-crisis period. As a result, the short-term debt channel is more sensitive to credit conditions than the long-term debt channel. Interestingly, we also show that trade credit does not compensate for the reduction in bank credit. Finally, our findings reveal that riskier and more profitable firms reduced their leverage more during the crisis than during the pre-crisis period. Implications for firms and policymakers are discussed. [ABSTRACT FROM AUTHOR]

This study investigates the effect of both family-centered goals and family board representation (family member representation on the board of directors) on family firm capital structure. Based on a sample of 327 Belgian family SMEs, our findings show that family-centered goals indirectly affect the total debt rate through family board representation. More specifically, the results indicate that this mediating effect holds primarily for the short-term (vs. long-term) debt rate and for the financial (vs. nonfinancial) debt rate. Taken together, our findings suggest that the socioemotional wealth (SEW) perspective is relevant and fruitful to explain debt decisions in family firms. Our findings contribute to family business literature and enable scholars and practitioners to gain a better understanding of family firm capital structure decisions. [ABSTRACT FROM AUTHOR]

The aim of this article is to investigate the financing behavior of privately held firms along the dispersion of family ownership. Drawing on the socio-emotional wealth perspective, we argue that debt levels are contingent on the degree of ownership dispersion among family members. Based on a sample of 2451 observations, in a 10-year time frame, our results reveal the existence of an inverted U-shaped relationship between debt level and intra-family ownership dispersion. We demonstrate that this relationship is moderated by the generational involvement that inverts it in later generations. [ABSTRACT FROM AUTHOR]

This article analyses the impact of the global crisis on the relationship between firm-related factors (size, tangible and intangible assets, growth, and profitability) and the capital structure of French micro-enterprises. A panel of 4945 firms are studied comparatively over two periods: before (2003-2007) and during (2008-2013) the global crisis. During the global crisis, micro-enterprises survive by relying mostly on internal sources of financing. External leverage is reduced, as the increased information asymmetry and default risk raise the cost of debt. When necessary, micro-enterprises sell the underused or unnecessary tangible assets, as they focus on their main competence and develop their intangible assets: human skills, advertising, networking, brand name, and awareness. In addition, we show that the pecking order is the most relevant theory for predicting the financial decisions and situation of French MEs. These results provide interesting insights into the financial strategy of French micro-enterprises, facilitating understanding and action at academic and policy levels. [ABSTRACT FROM AUTHOR]

Prior work examining the antecedents of capital structure for small and medium-sized enterprises in emerging markets is limited. This paper sheds light on how the corporate governance mechanisms adopted by firms on the newly established Growth Enterprise Market (GEM) in China influence their use of debt. We find that the financial leverage of GEM firms is positively influenced by executives' shareholding and their excess cash compensation. Ownership concentration appears to reduce leverage, whereas the percentage of tradable shares increases leverage. In contrast, institutional investors' shareholding does not influence the level of debt. Traditional factors such as tax and operating cash flow are insignificant in explaining the debt levels among GEM firms. [ABSTRACT FROM AUTHOR]

Why are some entrepreneurs able to start a new firm more quickly than others in the venture creation process? Drawing on pecking order and agency theory, this study investigates how start-up capital structure influences the time to either new firm founding or quitting the start-up process. The temporal aspect of the start-up process is one that is often discussed, but rarely studied. Therefore, we utilize competing risk and Cox regression event history analysis on a nationally representative sample of US entrepreneurs to investigate how start-up capital structure impacts the time in gestation to particular kinds of start-up outcomes. Our findings suggest that external equity has an appreciable impact on new firm emergence over time, and that the percentage of ownership held by the founders attenuates the benefits of external equity. [ABSTRACT FROM AUTHOR]

The aim of this study was to elucidate the relationship between corporate governance, credit ratings and the capital structure of small-to-medium enterprises (SMEs) and large Greek listed firms for the period spanning from 2005 to 2010. Panel regression analysis demonstrates that corporate governance structures and credit ratings play a significant role in the capital structure of Greek listed firms, especially during the crisis period (2008-2010). Moreover, firm-specific determinants such as size, profitability, asset structure and growth opportunities are also significant determinants of leverage. Finally, we detect that the influence of corporate governance variables on the capital structure of SMEs is less evident compared with large firms. We attribute this to the active involvement of owners in the management of SMEs, which reduces the need for shareholders to bear the costs of monitoring agents. [ABSTRACT FROM AUTHOR]

A major shortcoming of capital structure studies on developing economies is that they generally restrict their analyses to large publicly-traded manufacturing firms. Consequently, we know little about the applicability of various capital structure theories to firms that are private, small, and/or outside the manufacturing industry in these economies. In this paper, we conduct a comparative test of the trade-off and pecking order theories using a comprehensive firm-level dataset that covers manufacturing, non-manufacturing, small, large, publicly-traded, and private firms in a major developing economy, Turkey. The trade-off theory provides a better description of the capital structures of all firm types than the pecking order theory. Moreover, the trade-off theory appears to be particularly suitable for understanding the financing choices of large private firms in the non-manufacturing sector and when the economic environment is relatively stable. By contrast, pecking order theory is most useful when it comes to small publicly-traded manufacturing firms, especially when the economic environment is relatively unstable. [ABSTRACT FROM AUTHOR]

This article examines whether the capital structure of small and medium-sized enterprises (SMEs) and its firm-factor determinants are different across regions belonging to a single country. This subject is relatively innovative in capital structure research, since the majority of the studies carried out in a single country have neglected to take into account the region in which firms operate to explain leverage. To this end, we study whether the capital structure and its firm-factor determinants-size, asset structure, profit, growth, and age-differ depending on the region in which the SMEs are located. For the empirical analysis, panel data methods are applied to a sample of firms from all regions of Spain for the period 2004-2007. Our results not only suggest that there are regional differences in the SMEs capital structure but also confirm that the impact of firm-factor determinants on leverage differs across regions in terms of signs, magnitudes and significance levels. [ABSTRACT FROM AUTHOR]

Firm data from ten Western European countries is used in this paper to contrast the sources of leverage across small and large, as well as across listed and unlisted firms. Specifically, the explanatory power of firm-specific, country of incorporation institutional, and macroeconomic factors is evaluated. Using data that is more comprehensive in coverage than that used in the existing research the stylized facts of the capital structure literature for large and listed firms is confirmed, but contrasting evidence is obtained for smaller companies. First, the country of incorporation carries much more information for small firms, supporting the idea that small firms are more financially constrained and face non-firm-specific hurdles in their capital structure choice. Second, using two different leverage measures it is shown that the relationship of firm size and tangibility to leverage is robust to the measure used for listed, but not for unlisted firms. [ABSTRACT FROM AUTHOR]

The recently introduced risk capital allowance in Belgium, which allows a notional interest deduction (to be denoted NID hereafter) on a firm’s adjusted equity for tax purposes, has mitigated the tax discrepancy between equity and debt financing. To our knowledge, we provide the first empirical study of the extent to which this regulation has resulted in a strengthening of small and medium sized enterprises’ (to be denoted SMEs hereafter) solvency, which was one of its most prominent objectives. Results from logit regressions reveal that the probability of adopting the NID is higher for lowly leveraged SMEs, SMEs without experience with the tax-exempt investment reserve and SMEs with a sound knowledge of the notional interest deduction regulation. Results on the impact of the NID on the capital structure of SMEs based on panel and first differences regressions reveal that this measure did not result in a significant change of SMEs’ leverage. In view of the discussion regarding the optimal tax and legislative framework that governments should put in place (Poutziouris et al., J Small Bus Enterp Dev 6(1):7–25, 1999), these results cast doubt on the risk capital allowance, as it stands now, being the right government instrument to contribute—at least in the short term—to creating a pro-enterprising tax and legislative climate for SMEs. We conclude by providing some general suggestions for improving the effectiveness of the risk capital allowance. [ABSTRACT FROM AUTHOR]

The aim of this paper is to analyse the speed of adjustment of small and medium-sized enterprises (SMEs) to the target leverage. By applying a system GMM technique to Spanish panel data collected during the period 1995-2005, we estimate a partial adjustment model in which both target leverage and speed of adjustment are simultaneously endogenized. We provide empirical evidence on the determinants of target leverage and the speed of adjustment. More specifically, the rate of financial flexibility, growth opportunities and size are positively related to the speed of adjustment, whereas the distance to the optimal ratio of debt shows a negative impact. Our findings demonstrate that, in terms of sample mean, a high percentage of Spanish SMEs adjust rationally to their target. Additionally, the SMEs analysed appeared to be over-levered and fairly motivated to adjust (annual adjustment speed: 26%). [ABSTRACT FROM AUTHOR]

This study explores the financing choices of 1,214 nascent entrepreneurs in the PSED II dataset. Funding sources are divided into two broad categories: personal and external. We develop a set of hypotheses about the kinds of firm and nascent entrepreneur characteristics that would likely influence which categories of financial resources are used, and the amounts acquired. The majority of financing (57% of all financing) for emerging ventures comes from the personal contributions of its founders, who contributed a median amount of $5,500 per respondent. Firms that more likely to acquire external funding were projected to have higher levels of revenue, were incorporated, and were legally registered. Nascent entrepreneurs with higher levels of education and net worth were significantly more likely to acquire external funding. Results from analyses are presented and discussed. Implications of our findings are provided and suggestions for future research are offered. [ABSTRACT FROM AUTHOR]

This paper reviews the evidence on financing technology-based small firms (TBSFs) in Europe. European TBSFs finance new investments by relying primarily on internal funds, due to capital market failures induced by asymmetric information. European venture capital has caught up with US venture capital, but this is mainly because of the growth in UK venture investments. It is unclear whether European venture capital has been able to certify the quality and enhance the growth of funded companies. Compared with the NASDAQ, there is little development of trading in high-tech stocks in Europe: the so-called New Markets established in the 1990s collapsed in the wake of the Internet bubble crash. Public venture capital and research and development (R&D) tax incentives seem to have positively affected high-tech firms. [ABSTRACT FROM AUTHOR]

We study the impact of firm and industry characteristics on small firms' capital structure, employing a proprietary database containing financial statements of Dutch small and medium-sized enterprises (SMEs) from 2003 to 2005. The firm characteristics suggest that the capital structure decision is consistent with the pecking-order theory: Dutch SMEs use profits to reduce their debt level, and growing firms increase their debt position since they need more funds. We further document that profits reduce in particular short-term debt, whereas growth increases long-term debt. We also find that inter- and intra-industry effects are important in explaining small firms' capital structure. Industries exhibit different average debt levels, which is in line with the trade-off theory. Furthermore, there is substantial intra-industry heterogeneity, showing that the degree of industry competition, the degree of agency conflicts, and the heterogeneity in employed technology are also important drivers of capital structure. [ABSTRACT FROM AUTHOR]

The study reported here examines the financing choices of small and medium-sized firms, i.e., those most vulnerable to information and incentive problems, through the lens of the business life cycle. We argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity, and, consequently, firms' characteristics and needs at specific stages of their life cycles. The results show that, in a bank-oriented country, firms tend to adopt specific financing strategies and a different hierarchy of financial decision-making as they progress through the phases of their business life cycle. Contrary to conventional wisdom, debt is shown to be fundamental to business activities in the early stages, representing the first choice. By contrast, in the maturity stage, firms re-balance their capital structure, gradually substituting debt for internal capital, and for firms that have consolidated their business, the pecking-order theory shows a high degree of application. This financial life-cycle pattern seems to be homogeneous for different industries and consistent over time. [ABSTRACT FROM AUTHOR]

This paper presents an empirical examination of determinants of the capital structure of a sample of 299 Irish small and medium-sized enterprises (SMEs). Results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellner’s ( Journal of the American Statistical Association 57, 348–368, 1962) seemingly unrelated regression (SUR) approach is used to examine industry effects and to test the stability of parameter estimates across sectors. We find that the influence of age, size, ownership structure and provision of collateral is similar across industry sectors, indicating the universal effect of information asymmetries. Firms overcome the lack of adequate collateralisable firm assets in two ways: by providing personal assets as collateral for business debt, and by employing additional external equity to finance research and development projects. [ABSTRACT FROM AUTHOR]

This paper is based on agency theory, resource-based and upper-echelons perspectives to examine the relationship between R&D investment and capital structure and the moderating effects of top management team (TMT) characteristics on the financing decisions of R&D investment in small and medium enterprises (SMEs). Using data for SMEs in Taiwan’s IT industry, we find that (1) SMEs involved in R&D activities tend to have lower debt levels and (2) TMT characteristics exert considerable influence on the R&D investment-financial leverage relationship in SMEs. One important implication of the empirical evidence is that for SMEs trying to compete on the basis of innovation, the TMT characteristics significantly influence financing decisions. As innovative activities increase, the selection and development of top executives, who are responsible for choosing an optimal capital structure that could keep financial costs low while providing sufficient financial resources for maintaining a continuous, uninterrupted rate of R&D, is crucial for SMEs. [ABSTRACT FROM AUTHOR]

In this paper we investigate the capital structure determinants of Greek, French, Italian, and Portuguese small and medium-sized enterprises (SMEs). We compare the capital structures of SMEs across countries and differences in country characteristics, asset structure, size, profitability, risk, and growth and how these may impact capital structure choices. The results show that SMEs in these countries determine their capital structure in similar ways. We attribute these similarities to the country institutional and financial characteristics and the commonality of their civil law systems. However, structural differences arise due to firm specific effects. We find that size is positively related to leverage while the relationship between leverage and asset structure, profitability and risk is negative. Growth is not a statistically significant determinant of leverage for any of the four countries. Our main conclusion is that firm-specific rather than country facts explain differences in capital structure choices of SMEs. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

We examine the determinants of the debt-equity choice and the debt maturity choice for a sample of small, privately held firms in a creditor oriented environment. Our results, which are based on 4,706 firm-year observations for 1132 Belgian firms in the period 1996–2000, generally confirm the role of asymmetric information and agency costs of debt as major determinants of the financial structure of privately held firms. High growth firms and firms with less tangible assets have a lower debt ratio. We also find that more profitable firms have less debt. Firms tend to match the maturity of debt with the maturity of their assets. Growth options do not seem to influence debt maturity, which would suggest that the underinvestment problem is resolved by lowering leverage and by bank monitoring, not by reducing debt maturity. Credit risk is also an important determinant of debt maturity: firms with higher credit risk borrow more on the short term. Finally, in contrast to most studies on the financial structure of companies, we find that larger firms tend to have a higher debt ratio and a shorter debt maturity. [ABSTRACT FROM AUTHOR]

This paper investigates the choice between bank debt and trade credit in business start-ups. While trade credit is more expensive than bank debt, suppliers tend to follow a more lenient liquidation policy when client firms encounter financial distress. As a result, suppliers are more willing to renegotiate the outstanding debt or grant additional debt whereas banks are more likely to liquidate borrowers upon default. Given the risky nature of business start-ups, we argue that the entrepreneur’s choice of debt instruments reflects these differences in liquidation policy between lenders and is thus determined by the venture’s failure risk, the entrepreneur’s private control benefits that are lost upon liquidation and the liquidation value of firm assets. Using unique data on 325 first-time business start-ups, we find that firms in industries with high historical start-up failure rates and entrepreneurs who tend to highly value private benefits of control use less bank debt. These effects are especially prevalent in start-ups where assets have a high liquidation value and thus banks are more likely to liquidate the venture following default. [ABSTRACT FROM AUTHOR]

The principal aim of this paper is to test how firm characteristics affect Small and Medium Enterprise (SME) capital structure. We carry out an empirical analysis of panel data of 6482 non-financial Spanish SMEs during the five years period 1994–1998, modelling the leverage ratio as a function of firm specific attributes hypothesized by capital structure theory. Our results suggest that non-debt tax shields and profitability are both negatively related to SME leverage, while size, growth options and asset structure influence positively SME capital structure; they also confirm a maturity matching behaviour in this firm group. [ABSTRACT FROM AUTHOR]

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 finns 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 sub-optimal 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. [ABSTRACT FROM AUTHOR]

Theoretical researchers posit many factors that affect a firm's capital structure decisions. Theory also suggests that these influences will have different impacts on small and large finns. However, empiricists face difficulties in testing these hypotheses due to problems of quantifying the motivations, expectations, and preferences prevalent in the various theories. To test some of the strands of theory and to deter. mine differences between small and large corporation capital structure beliefs, a survey was sent to financial managers of 405 small corporations; 27% of the surveys were completed and returned. By comparing the results of this survey to those of previously published large corporation surveys, similarities (e.g., belief in a financing pecking order, little belief in the importance of bankruptcy costs, agency costs, and information asymmetries) and differences (e.g., less reliance by small firms on target debt ratios, greater preference for zero debt by the small firms) were identified. [ABSTRACT FROM AUTHOR]