TY - JOUR

T1 - The effects of managerial preferences on the financial behaviour of small firms

T2 - A demand-side perspective

AU - Schulte, Reinhard

AU - Weigand, Christopher

PY - 2020/12/1

Y1 - 2020/12/1

N2 - 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.

AB - 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.

KW - Capital structure decision

KW - Entrepreneurial finance

KW - Financial decision-making

KW - Pecking-order hypothesis

KW - Small business finance

KW - Small firm capital acquisition

KW - Small firm financing

KW - Management studies

KW - Entrepreneurship

UR - http://www.scopus.com/inward/record.url?scp=85097259929&partnerID=8YFLogxK

U2 - 10.1504/IJEV.2020.111534

DO - 10.1504/IJEV.2020.111534

M3 - Journal articles

AN - SCOPUS:85097259929

VL - 12

SP - 522

EP - 546

JO - International Journal of Entrepreneurial Venturing

JF - International Journal of Entrepreneurial Venturing

SN - 1742-5360

IS - 5

ER -