Search results

The literature documents a shortage in the supply of external funding to small- and medium-sized enterprises (SMEs) in general and to innovative SMEs in particular. This study separates cognitive from financial constraints on innovative SMEs’ growth opportunities. Using data gathered through in-depth interviews with the CEOs of 115 SMEs, we reveal that over and above a problem with supply, there exists a twofold problem on the demand side. Specifically, we document that there is a tendency for these companies to avoid approaching external funding sources, especially ones that gear their investments toward innovation. Our results reveal a cognitive bias (over-pessimism) affecting the entrepreneurs’ (lack of) demand for external financing over and above other firm-specific factors. CEO tenure — our proxy for human and social capital — is significantly lower (higher) in firms that did (did not) pursue external funding. This finding may provide some support for our hypothesis regarding the cognitive bias and over-pessimism of the more veteran CEOs who have had negative experiences regarding recruiting external resources. The impact of this entrepreneurial cognition is shown to be economically detrimental to the enterprise. Nevertheless, the negative effects are not limited to the micro level, but have implications at the macro level as well, due to under-realization of the potential for employment, productivity, and growth of the firms comprising the vast majority of the economy.

The operational framework of external financing in the correlation between the gender of entrepreneurs and firm performance remains to be resolved. This study aims to investigate the mediating effect of external financing on gender-based disparities in private firm performance and to explore its heterogeneity within the Chinese context.

Based on national data from the 10th to 13th Chinese Private Enterprise Survey, this study used a bootstrap-based mediation effect model to analyze the role of external financing as a mediator in the relationship between entrepreneur gender and firm performance.

This study found that external financing is a constructive mediator between entrepreneur gender and firm performance. Heterogeneity analysis revealed that external financing plays a complementary mediation role in the impact of entrepreneur gender on performance in West China. In the tertiary industry, external financing acts as the sole mediator for the impact of gender on firm performance. Notably, this mediating effect is present in non-startups but not in startups.

The findings suggest that external financing can improve the firm performance of female entrepreneurs. Governments and policymakers should strengthen financial support for female entrepreneurs in West China, tertiary industry and non-startup enterprises.

This paper contributes to the literature on gender and corporate governance by shedding light on the mediating role of external financing in the relationship between the gender of business owners and firm performance.

The main purpose of this paper is to empirically examine how firm-specific (idiosyncratic) and macroeconomic risks affect the external financing decisions of UK manufacturing firms. The paper also explores the effect of both types of risk on firms' debt versus equity choices.

The paper uses a firm-level panel data covering the period 1981-2009 drawn from the Datastream. Multinomial logit and probit models are estimated to quantify the impact of risks on the likelihood of firms' decisions to issue and retire external capital and debt versus equity choices, respectively.

The results suggest that firms considerably take into account both firm-specific and economic risk when making external financing decisions and debt-equity choices. Specifically, the results from multinomial logit regressions indicate that firms are more (less) likely to do external financing when firm-specific (macroeconomic) risk is high. The results of probit model reveal that the propensity to debt versus equity issues substantially declines in uncertain times. However, firms are more likely to pay back their outstanding debt rather than to repurchase existing equity when they face either type of risk. Of the two types of risk, firm-specific risk appears to be more important economically for firms' external financing decisions.

The findings of the paper are equally useful for corporate firms in making value-maximizing financing decisions and authorities in designing effective fiscal and monetary policies to stabilize macroeconomic conditions. Specifically, the findings emphasize on the stability of the overall macroeconomic environment and firms' sales/earnings, which would result stability in firms' capital structure that help smooth firms' investments and production.

Unlike prior empirical studies that mainly focus on examining the impact of risk on target leverage, this paper attempts to examine the influence of firm-specific and macroeconomic risk on firms' external financing decisions and debt-equity choices.

The purpose of this paper is to explore the extent to which various theories of capital structure “fit” in the case of new technology‐based firms.

This study uses data from the Kauffman Firm Survey, a longitudinal data set of over 4,000 firms in the USA. Descriptive statistics and multivariate results are provided.

The authors' findings reveal that new technology‐based firms demonstrate different financing patterns than firms that are not technology‐based.

Although some support was found for both the Pecking Order and Life Cycle theories, the results also indicate that technology‐based entrepreneurs are both willing and able to raise substantial amounts of capital from external sources.

Technology‐based entrepreneurs need external sources of equity, in particular, in order to launch and grow their firms.

To the authors' knowledge, this is the first article to test specific theories of capital structure using a large sample of new technology‐based firms in the USA.

This study aims to investigate the influence of economic policy uncertainty (EPU) and geopolitical risk (GPR) on the relationship between internal cash flow and external financing in an emerging market, Saudi Arabia. It also examines the role of asset tangibility and financial crisis in establishing this relationship.

The sample was taken from non-financial sector companies listed on the Saudi Stock Exchange between 2002 and 2019. The data were analyzed using panel data regression analysis, including ordinary least squares and fixed effects model. The author addresses potential endogeneity through the generalized method of moments.

This study found that both EPU and GPR reduce the sensitivity of external financing to internal cash flow. This implies that firms depend more on internally generated funds during periods of increased EPU and GPR. Besides, this study found that the influence of EPU and GPR on the sensitivity of external financing to internal cash flow is more (less) negative for more tangible firms (during the financial crisis period). This result implies that Saudi firms boasting a higher level of tangibility are more flexible when it comes to seeking external financing. However, the presence of uncertainty during the crisis period makes the external financing costly, and therefore, firms will be less likely to raise funds from external sources.

This study has important implications for managers, policymakers and regulators. First, the paper findings provide insights for corporate decision-makers in helping them to focus on internal funds to finance their investment during uncertain times. Second, the findings help managers to understand the role of asset tangibility in raising external funding when firms face financial constraints due to uncertainty. Third, this study also helps corporates to focus on internal funds to finance their investment during the crisis period because EPU and GPR increase the cost of external finance. Finally, the results provide guidelines for policymakers and regulators to make appropriate policy measures to increase the easy availability of external finance during periods of increased EPU and GPR.

This paper is the first to shed light on the impact of internal funds on external financing while paying close attention to the role of EPU and GPR.

The authors provide firm-level evidence that external financing affects international trade in a way different from internal financing.

The authors separate new entrants from incumbent exporters and investigate the roles of external and internal financing in export market participation and export quantity.

The authors find that external financing is of particular importance, as well as internal financing, in helping a firm become a new exporter. By contrast, external financing, unlike internal financing, is not significantly important for an incumbent exporter to stay in the international market. Regarding export quantity, a firm's internal financing is positively associated with more export quantity, whereas external financing is not.

The authors’ findings are consistent with the existence of significant fixed cost for entering the export market and external financing is particularly needed to cover such cost. Meanwhile, the financial need for maintaining the export status is much less and can be satisfied via internal financing.

This paper aims to propose several factors which can explain the negative relationship between financial constraints and investment-cash flow sensitivity.

The author uses traditional fixed effects model and minimum distance panel estimation by Erickson and Whited (2000) to estimate investment-cash flow sensitivity in the cash flow-augmented investment equation. In addition, principal component analysis is used to construct a financial constraints measure.

First, it was found that substitutability between cash holdings and free cash flow can partially explain why financially constrained firms do not depend on cash flow as heavily as we expect. Second, it was confirmed that the level of net external financing can also partially explain the investment-cash flow sensitivity puzzle. Furthermore, it was argued that the influence of cash holdings and external financing on investment-cash flow sensitivity is caused by the low level of internal cash flow for financially constrained firms. This argument is supported by our findings from an examination of investment-cash flow sensitivity for bank-dependent firms during the recession periods.

This paper contributes to the literature by suggesting possible partial explanations for the contradictory relationship between investment-cash flow sensitivity and financial constraints.

We examine whether discretionary accruals of firms obtaining substantial external financing can be explained by managerial manipulation or managerial overoptimism. Insider trading patterns and press releases around equity and debt financing suggest that managers are more optimistic about their firms around debt financing. Consistent with earlier studies, we find that discretionary current accruals peak when firms obtain equity financing. However, we also find that discretionary accruals peak when firms obtain debt financing. Moreover, discretionary accruals are higher for firms that rely on debt rather than on equity financing. The results are robust to controlling for firm characteristics, excluding small and distressed firms, and using alternative measures of discretionary accruals. These findings support the hypothesis that managerial overoptimism distorts financial statements of firms obtaining external financing.

The purpose of this paper is to investigate the relation between debt structure and future external financing and investment. Furthermore, it aims to analyze the association between debt structure and future financial performance.

Volume, maturity, possessing collateral and having priority at the settlement date are the dimensions of debt structure that have been employed in this paper. The sample consists of 1,060 firm-year observations from Tehran Stock Exchange corporations during the period 2009–2018.

The findings reveal that greater reliance on financial leverage (debt volume) and short-term debt are associated with increases in future debt financing as well as future equity financing. Moreover, these two dimensions of debt structure are positively related to future investment. This paper also shows that the positive impact of financial leverage and short-term debt on future financing and investment can finally lead to a favorable financial performance. Regarding other dimensions of debt structure, the results suggest that although collateralized debt with the priority option at the settlement date enhances future external financing, this type of debt can ultimately lead to a reduction in future investment and financial performance. Finally, the findings indicate that uncollateralized debt exacerbates future financial performance.

Financial performance can be affected by several factors, including available funds, investment amount, investment efficiency and managerial capability. However, this paper only considers the investment amount and external financing as the channels through which debt structure improves future financial performance. This study has the potential to contribute to one of the most important issues in finance and business fields, despite its probable trivial drawbacks.

Financing strategies as one of the most controversial topics have been meticulously scrutinized in this paper and practical implications are made to facilitate the process of decision-making regarding the optimal type of debt financing.

This study extends the literature by analyzing the direct link between debt structure and firm performance in firms domiciled in developing markets.

This paper aims to investigate the effects of external sources of finance and ownership type on the value creation of Chinese acquiring firms.

The data set consists of domestic-listed mainland Chinese firms engaged in domestic mergers and acquisitions during the period 2004–2012. Standard event study methodology and cross-sectional regression analysis are used to examine the relationship between external finance, ownership type and value creation of the acquiring firms.

This paper finds that whereas bank financing is positively related to the firm value of privately-owned enterprises (POEs), bank financing has a negative but insignificant influence on the firm value of state-owned enterprises (SOEs). Moreover, equity financing has a negative and significant effect on the value creation of SOE acquirers, however, this appears not to be the case of POEs.

The results suggest that the capital markets in China take into consideration the discriminatory and cheap access to bank loans available to SOEs as negative signals to stock markets, which cause capital markets to punish SOEs through price depreciation. Conversely, capital markets reward POEs in respect of Chinese banks’ discrimination against POEs in bank financing.

The results suggest that the capital markets in China take into account the discriminatory and cheap access to bank loans available to SOEs as negative signals to stock markets, which cause capital markets to punish SOEs through price depreciation. Conversely, capital markets reward POEs in respect of Chinese banks’ discrimination against POEs in bank financing.

The results of this study show that external sources of finance and ownership type influence acquiring firm value in an environment where the corporate governance system is weak and the banking sector is dominated by state banks. Further reforms in the financial sector, particularly, in the corporate governance system appear warranted.