Trajectories of Small Business Financial Structure

Trajectories of Small Business Financial Structure A dynamic theory of the small firm is expounded, assuming entrepreneurs maximise business value over a finite time horizon. Predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper. The predicted trajectories are compared with actual trajectories, using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in Scotland. Evidence largely confirms predictions of the model, for the cheap equity case. For this case, as capital and sales rise steadily, debt is retired rapidly, except when interest rates on long-term debt are low. This finding is supported by explicit empirical trajectories of key financial variables. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

Trajectories of Small Business Financial Structure

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1023/A:1022915308274
Publisher site
See Article on Publisher Site

Abstract

A dynamic theory of the small firm is expounded, assuming entrepreneurs maximise business value over a finite time horizon. Predicted trajectories for key financial variables are seen to depend on whether debt or equity are cheaper. The predicted trajectories are compared with actual trajectories, using empirical evidence from three years of detailed primary source data on one hundred and fifty new business startups in Scotland. Evidence largely confirms predictions of the model, for the cheap equity case. For this case, as capital and sales rise steadily, debt is retired rapidly, except when interest rates on long-term debt are low. This finding is supported by explicit empirical trajectories of key financial variables.

Journal

Small Business EconomicsSpringer Journals

Published: Oct 11, 2004

References

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