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An empirical investigation of the financial growth lifecycle

Ciarán Mac an Bhaird (Fiontar, Dublin City University, Dublin, Ireland)
Brian Lucey (School of Business, Trinity College Dublin, Dublin, Ireland)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 25 October 2011




This paper aims to empirically examine the financing of small and medium sized enterprises (SMEs) through a financial growth lifecycle model.


Data in publicly available databases are generally unsuitable to examine the financial lifecycle model, thus a questionnaire survey was employed to collect data. Because of the well‐documented reticence of SME owners to reveal detailed financial information, data were requested in percentage form. This innovative methodology was successful, as 92 per cent of respondents disclosed detailed financing data. A response rate of 42.6 per cent across six industry sectors provided data to employ parametric techniques. Reporting and analysing the large primary data set across six age categories, a number of statistical tests were conducted to test the financial growth lifecycle model.


Analysis of respondents' capital structures across age groups indicates distinct changes in sources of finance employed by firms over time. Financing choices are consistent with Myers's pecking‐order hypothesis, and the importance of profitability in financing SMEs is emphasised. Contrary to conventional wisdom, respondents in the youngest age category report a relatively high use of debt financing. This is explained by the provision of firm owners' personal assets to secure firm debt.


The key contribution of this paper is to provide an empirical examination of the financial growth lifecycle model by combining a number of statistical tests. This approach is significantly different to that traditionally adopted in empirical investigations of SME financing, which is to examine the applicability of theories developed in corporate finance on panel data. Additionally, the paper presents data on personal sources of finance employed by firm owners, which is typically not available, even in comprehensive secondary databases.



Mac an Bhaird, C. and Lucey, B. (2011), "An empirical investigation of the financial growth lifecycle", Journal of Small Business and Enterprise Development, Vol. 18 No. 4, pp. 715-731.



Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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