Trajectories of Small Business Financial Structure

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    34 Citations (Scopus)

    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.

    Original languageEnglish
    Pages (from-to)273-285
    Number of pages13
    JournalSmall Business Economics
    Volume20
    Issue number4
    DOIs
    Publication statusPublished - Jun 2003

    Keywords

    • SMALL FIRM
    • BEHAVIOR
    • CONSTRAINTS

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