Ciaran Mac an Bhaird

The recent surge in use of alternative sources of entrepreneurial finance is viewed as transformative, providing entrepreneurs with an increased variety of resourcing options. Through exploring cognitive heuristics of entrepreneurs’ financing decisions, this study examines provision of disintermediated debt through online platforms. Heretofore unexamined demand side issues reveal valuable processual advantages for entrepreneurs, along with ancillary non-financial benefits. Our study reveals the multifaceted nature of the financing decision, and how alternative finance is compatible with long standing entrepreneurial preferences for control and managerial independence. Peer to peer lending overcomes a number of issues relating to agency, networks, and spatial aspects of financing. Contrary to previous research, we find that marketing and promotion, rather than raising finance, are of greater importance. Entrepreneurs’ preferences for locally provided equity finance have implications for investors and platforms, and disintermediation of finance presents challenges to traditional funders. The surge in use of alternative finance varies by and within sectors, although it is important not to overstate its revolutionizing potential. Rather, it provides entrepreneurs with an expanded variety of financing options, and complements rather than replaces traditional sources. It is likely more beneficial in countries lacking diversification in private debt and equity markets.

The recent surge in use of alternative sources of entrepreneurial finance is viewed as transformative, providing entrepreneurs with an increased variety of resourcing options. Through exploring cognitive heuristics of entrepreneurs’ financing decisions, this study examines provision of disintermediated debt through online platforms. Heretofore unexamined demand side issues reveal valuable processual advantages for entrepreneurs, along with ancillary non-financial benefits. Our study reveals the multifaceted nature of the financing decision, and how alternative finance is compatible with long standing entrepreneurial preferences for control and managerial independence. Peer to peer lending overcomes a number of issues relating to agency, networks, and spatial aspects of financing. Contrary to previous research, we find that marketing and promotion, rather than raising finance, are of greater importance. Entrepreneurs’ preferences for locally provided equity finance have implications for investors and platforms, and disintermediation of finance presents challenges to traditional funders. The surge in use of alternative finance varies by and within sectors, although it is important not to overstate its revolutionizing potential. Rather, it provides entrepreneurs with an expanded variety of financing options, and complements rather than replaces traditional sources. It is likely more beneficial in countries lacking diversification in private debt and equity markets.

We investigate the effectiveness of government backed venture capital schemes (GVCs) in funding early stage entrepreneurial ventures. Addressing fundamental issues of additionality, crowding out, economic impact and sustainability, we discover that UK GVC-backed schemes have evolved to provide more effective, targeted, funding for high growth potential firms. Combining primary data from a number of sources, we discover positive impacts of increases in turnover and employment in funded ventures, along with effective targeting of specific funding gaps. Significant issues remain, including a lack of liquidity in follow-on funding and a requirement for longer time horizon in funds, as firms typically fall behind in development schedules. There is, therefore, a need for greater flexibility in GVC-backed funds. Policy designers should be cognisant of the changing external financing ecosystem when designing co-investment schemes.

This study examines the decision by firm owners not to apply for intermediated debt due to a perception that their application will be rejected for a sample of small firms in 9 European countries - these are “discouraged” borrowers. Compared with firms that applied for bank loans, discouraged borrowers are smaller, younger, have declining turnover and an increasing debt to assets ratio. Transmission of macro effects through the banking system and the economic environment also leads to higher levels of discouragement. Higher regulatory quality results in greater borrower discouragement, indicating the importance of regulation and enforcement mechanisms for the efficient functioning of private debt markets.

Academic studies investigating the financing of SMEs commonly examine the subject by conducting multivariate regression analysis employing panel data sets consisting of accounting and finance data (see Appendix B for a comprehensive review of this literature). Researchers adopting this approach seek to explain financing choice in terms of firm characteristics such as firm size, age, asset structure, profitability, growth opportunities, and legal organisation. This methodology, whilst beneficial in theory testing and preliminary benchmark studies, neglects one of the most important aspects of small business and entrepreneurship: the central role of the SME owner. Given the primary decision making role of the firm owner, this method excludes a fundamental element of the financing and finance provision in SMEs. The approach adopted in this chapter is to record SME owners’ views on financing their businesses, and the reasons why they choose one type of finance over another, or why they ...

This study investigates firm characteristic determinants of export intensity in small firms. The originality of our approach is a comparative analysis of export intensity between firms in the computer software and manufacturing sectors, using a quasi-maximum likelihood estimation to test for the correct specification of the conditional mean model. Results indicate that larger, younger firms have greater export intensity in the computer software sector than in manufacturing. Research and development expenditure is equally important for export intensity in both sectors, but patent income is not significant. Sourcing managerial advice and expertise from the national development agency is important for firms in the manufacturing industry, but not for computer software firms. It is therefore important for export promotion organisations to publicise supports, as few small firms are aware of their availability. Our findings are especially valuable for policy makers concerned with low level...

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.

Empirical evidence suggests that cost-based considerations, firm-specific characteristics, and owner-specific factors — such as desire for control and managerial independence — are important determinants of capital structures of entrepreneurial firms.

Prior to the 1970s the focus of governments, practitioners, and academic researchers was primarily confined to large corporations, as it was considered that large enterprises were the key to economic growth. A notable development in the mid to late part of that decade was the increased attention of authors and scholars to the small business sector. The publication of “Small is Beautiful” by E.F. Schumacher in 1973 was characteristic of this change, and although he did not explicitly champion the SME business sector, his promotion of “smallness within bigness” marked a less enthusiastic attitude to large organisations than heretofore. A defining moment in the emergence of SMEs as a focus of the attention of policy makers and academic scholars was the publication of Birch’s (1979) paper entitled “The Job Generation Process.” Prior to this study, authors had concentrated on large publicly quoted corporations, which were considered the most important source of employment generation. Although it has since been criticised, primarily on methodological grounds (Storey 1994b), Birch’s study highlighted the contribution of SMEs in terms of employment, which was a serious concern for governments at the time. Increased interest by academics and policy makers in the sector resulted in a proliferation of publications and the implementation of many and varied policy initiatives. This phenomenon was not evident worldwide, however, and the burgeoning literature that emerged originated predominantly in the US and UK. Notwithstanding an increase in the geographical range and number of publications in the past two decades, the subject of SME research is still in its infancy.

Empirical evidence from previous studies (Sogorb Mira 2005) and reports (Brierley and Kearns 2001; Cole 2008) suggests that firm characteristics such as size, age, growth, and profitability have a significant influence on a firm’s capital structure. Additionally, a number of studies suggest that asset structure is a primary determinant of firm financing (Bartholdy and Mateus 2008), implying inter-industry differences in capital structures, as firms in industries typified by greater levels of collateralisable assets have the capacity for, and may employ, greater levels of debt than firms with a higher concentration of intangible assets (Brierley and Kearns 2001). Indeed, intra-industry capital structures may be more comparable than inter-industry capital structures (Harris and Raviv 1991). In this chapter, the potential determining effect of firm characteristics on the source of finance employed is investigated by testing a number of multivariate regression models on financing data of firms in the sample. Whilst the multivariate regression approach employed in this study is not original, there are a number of novel features in the statistical methodology adopted and variables tested. Application of regression analysis on survey data is uncommon in finance (De Jong and Van Dijk 2007), particularly in SME finance, as previous empirical theory testing studies conducted multivariate regression models on panel data (Heyman et al. 2008; López-Gracia and Sogorb-Mira 2008). Additionally, this study employs data on sources of internal and external equity, in addition to debt, as dependent variables in regression models. This approach is an advancement on previously published studies, which typically tested regression models employing short- and long-term debt as dependent variables (Heyman et al. 2008), with very few published studies employing a measure of equity as a dependent variable (Ou and Haynes 2006), and none employing both measures. (The dearth of studies employing internal equity as a dependent variable is surprising, considering the well-documented reliance of SMEs on retained earnings (Vos et al. 2007; Cole 2008)). Furthermore, this study employs detailed data on provision of collateral by respondents as an independent variable. This approach is considered novel, as models developed in previous studies typically test firm characteristics such as age, profitability, and size, but do not include means of collateral provision.

The means of finance employed for positive net present value (NPV) projects has important implications for the firm. The cumulative effect of these discrete financing decisions results in the capital structure of the firm, composition of which has long been a focus of research in the corporate finance discipline. Theoretical discourse on the subject originates from the irrelevance propositions of Modigliani and Miller (1958), stating that the capital structure of the firm is independent of its cost of capital, and therefore of firm value. This has spawned a substantial body of theoretical literature and empirical tests, which have focused primarily on the decision to employ debt or equity for investment projects. These studies focus on subjects of agency, signaling, and taxation, typically examining the incremental financing decision.