The effects of managerial preferences on the financial behaviour of small firms: A demand-side perspective

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In this study, we argue that the financial behaviour of small firms is largely affected by the preferences of the owners, who aim for either independence or wealth maximisation. By analysing survey data from Germany, we observe that owners with a preference for minimising capital costs and maintaining decision-making autonomy deploy more internal financing and raise short-term debt to meet temporary capital requirements. In contrast, owners raise more long-term debt when banks also provide non-financial complementary resources, but they seem to acquire external equity instead of debt to develop new resources and capabilities in collaboration with new co-owners. In light of our findings, we propose a dichotomy of a financial bootstrapping and an added-value pecking-order that small firm owners follow depending on their overarching goal. Overall, our findings indicate that small firm capital acquisition in Germany nowadays reflects more demand-driven rather than supply-constrained behaviour.

Original languageEnglish
JournalInternational Journal of Entrepreneurial Venturing
Issue number5
Pages (from-to)522-546
Number of pages25
Publication statusPublished - 01.12.2020

    Research areas

  • Capital structure decision, Entrepreneurial finance, Financial decision-making, Pecking-order hypothesis, Small business finance, Small firm capital acquisition, Small firm financing
  • Management studies
  • Entrepreneurship