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This chapter empirically investigates how banks evaluate the creditworthiness of small- and medium-sized enterprises (SMEs). Following SME loan underwriting literature that distinguishes among different lending technologies, we test whether the typical SME bank loan is underwritten primarily based on just a single technology. We find that although financial statement lending is the most commonly used and serves as a kind of basic technology, it tends not to be used to the exclusion of other technologies. These findings imply that, at least in Japan, SME lending practice may be inconsistent with academic research on how banks underwrite loans elsewhere.

Small and medium enterprises (SMEs) commonly struggle to acquire needed financial, human, and technological resources. The above being stated, recent scholarly research argues that SMEs that are able to successfully navigate the legitimacy threshold are better able to gather the resources they need to survive and grow. This article provides an empirical test of that claim by examining whether the presence of a corporate parent positively influences SME resource acquisition. Results of the study show that SMEs with corporate parents, when compared to like-sized independent SMEs, have higher credit scores, have more complete management teams, use more computers, and are more likely to be on the Internet. These differences are most pronounced for very small firms and diminish in significance as firm size increases. Study implications include the notion that presence of a corporate parent likely represents a successful navigation of the legitimacy threshold, positively increasing SME resource acquisition.

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.

The purpose of this paper is to provide empirical quantitative evidence concerning small business financing in China and highlight the financing problems faced by small to medium‐sized enterprises (SMEs) in developing their businesses.

A semi‐structured questionnaire survey was conducted to collect data from a sample of 60 small businesses in three cities in China. Descriptive methods and the SPSS statistical software package were used to analyse the data and interpret the results.

The data gathered covered current topic in research including the capital structure of SMEs at start‐up, the types and extent of funding shortage, the preference of financial resources as SMEs grow, the significant factors, which help SMEs secure bank loans and the influence of a firm's size, age and the like. The findings generally support financial theories and previous studies about SMEs but also offer the basis for new arguments about financing SMEs in China.

The sample size is relatively small and statistical analysis is relatively straightforward.

The present study will be of interest to policy makers developing new strategies and policies to support the financing of SMEs in China.

The results from this study contribute to the understanding of current problems in financing Chinese small business enterprises. These include findings, which were not presented in other similar studies.

The purpose of this paper is to assess US-based firms from 2005 to 2015 to determine whether firms with better corporate social responsibility (CSR) performance will allocate capital through their life-cycle to better maintain or extend total assets.

Kinder, Lydenberg, Domini Research & Analytics social performance rating scores were used to measure CSR performance in an initial sample of 19,707 firm-year observations. Firms are first classified into stages including introduction, growth, maturity, and decline, and use multiclass linear discriminant analysis, the Dickinson classification scheme (Dickinson, 2011), and the ratio of retained earnings to total assets (RETA) as life-cycle proxies. Life-cycle was formulated based on a broad set of accounting data sourced from Compustat. Various corporate characteristics from the CRSP database were used to classify all sample firms into five equal groups based on their CSR performance.

A firm’s equity and debt issuance assume a hump shape over the life-cycle under CSR practice, and higher-CSR firms face fewer significant issues as they mature; payout, RETA, and free cash flow decreased from high-CSR performance firms to low-CSR performance firms; and cash holdings also exhibit a hump shape over the life-cycle and higher-CSR practices are associated with significantly lower cash holdings.

CSR performance is a useful predictor for forecasting firm life-cycle and superior CSR performance ensures efficient capital allocation throughout firm life-cycle. Furthermore, CSR practice is an indicator of firm life-cycle sustainability and indicates a firm’s future cash flow patterns.

The purpose of this paper is to examine the impact of small loans on new firm performance using data from the second Panel Study of Entrepreneurial Dynamics, a large longitudinal data set of new firms in the USA. Contrary to prior research which suggests that small or microloans primarily benefit entrepreneurs who experience disadvantages in the marketplace, the findings revealed no significant differences in loan source or loan amount by gender, ethnicity, or employment status during the early years of the firm. The findings did reveal, however, that the motivations (push vs pull) of the entrepreneur were a determinant of loan source. From this, the authors begin to develop a theory of financial bricolage based on the premise that small loans secured at key points in time can make a significant difference on firm performance for all types of entrepreneurs, not just those who have traditionally be classified as “disadvantaged.”

The data for this study was taken from the Panel Study on Entrepreneurial Dynamics (PSED II). The authors focussed on business performance measures over the six years of that study to reassess existing findings on relationships between microfinance and underperformance, especially among women, ethnic and unemployed entrepreneurs, from a financial bricolage perspective. Specifically, the authors will assess the impact of small or microloans on business performance over time by tracking the role of financial sources, amount of money borrowed, background characteristics, and motivation to start a business (i.e. push or pull).

The results also revealed no significant difference by gender, ethnicity, or employment status in the source of amounts of small loans secured during the first two years of the businesses. Thus, consistent with the theory of financial bricolage, all types of entrepreneurs engaged in seeking out small loans during the early years of their businesses’ existence.

Although using the PSED II has many advantages, it is not protected from methodological pitfalls. One such potential disadvantage is the fact that this database allows the authors to understand the development of US-based nascent entrepreneurs, but overlooks other countries. Future research efforts should be focussed on surveying nascent entrepreneurs from other countries and cultures to expand the understanding of the relations between small loans and financial sources on business performance worldwide. This could be most useful for intensifying research in regions that generate more push and/or pull entrepreneurs. A second disadvantage inherent in the PSED is that interviews in follow-up surveys may have become impossible over time, resulting in missing data. In addition, the reasons for being unable to reach interviewees are not always clear. In the entrepreneurial realm, these reasons have a great impact on the understanding of the development of new businesses. Interviewees’ businesses may have gone bankrupt, merged with other firms and thus changed contact details, gone global and therefore left the country, etc. (Delmar and Shane, 2003); these could bias the results. A final potential weakness in the PSED is that the data are based on entrepreneurs’ self-reports which are known to be prone to many kinds of response bias.

By offering practical education aimed at enhancing the financial performance of entrepreneurs, the authors believe that they can meet the challenges posed by the research (e.g. Du Rietz and Henrekson, 2000; Parker, 2004; Pfeiffer and Reize, 2000; Reynolds et al., 2002) on performance gaps between entrepreneurs with different background characteristics and those embarking on entrepreneurship with different motivations (push vs pull). In line with the financial bricolage theory, the results may aid governmental bodies, educational and academic institutions oriented toward entrepreneurs, and small businesses, in constructing programs that will train entrepreneurs to be attentive to the diverse range of potentially available resources, including small loans and different financial sources.

The research challenges the necessity-opportunity simplistic categorization and builds upon prior work in the field of bricolage, or the practice of “making do with whatever is at hand,” to begin developing a theory of “financial bricolage.” It is the contention that all new businesses are resource-constrained due to challenges posed by asymmetric information. Thus, new businesses, in general, do not have access to a full range of funding alternatives. In light of this, small loans may be critical for the survival and success of not only necessity-based businesses but opportunity-based businesses as well. The results and findings bear this out.

This paper aims to empirically investigate the existence of dynamic capital structure among small and medium-sized enterprises (SMEs) across their life cycle stages.

The analysis examined a sample of 15,952 SMEs across five industry sectors for the 2009-2012 period. Several techniques, including ANOVA and multivariate regressions, were used to analyse firm-level data.

The findings suggest that start-up SMEs, on average, rely on equity capital, and that the level of equity capital increases as firms age. The short-term debt level is particularly high in early life cycle stages, decreasing later on. The long-term debt ratio is positively related to firm age, although it is low in all life cycle stages investigated.

The findings may help several parties, including firm owners, to better understand how capital structure can be related to various life cycle stages. Such an understanding may help these actors use financial resources efficiently.

To the authors’ best knowledge, little research has addressed whether there are any differences in financing patterns over the firm life cycle.

Entrepreneurship involves complex interactions between individuals and environments but there is little research on these dynamics. We address this gap by conducting an inductive qualitative study of entrepreneurs in the exclusive tourist destination of Tiradentes, Brazil. Tiradentes has a unique architectural, cultural, and economic heritage that serves as a unique sociocultural backdrop that influences entrepreneurs’ models of start-up thinking and action. Specifically, our investigation revealed that entrepreneurs’ backgrounds (native vs. nonnative) and social identities come together with the sociocultural fabric of the community in a way that moved them towards a “Joia” or “Bijuteria” orientation, each of which were associated with a distinct mindset. This diversity had implications for entrepreneurs’ conceptualizations of start-up models possible within the backdrop of Tiradentes sociocultural fabric and this influenced the actions entrepreneurs took such as the geographic location chosen for the business and the business practices used. We discovered that entrepreneurs favoring one orientation over another tended to occupy predictable physical and social positions in the community while also espousing similar values and perspectives. These results are used to elaborate the theory on the link between the external and internal explanation for entrepreneurial thinking and action. The net effect is new understanding regarding ways models of start-up thinking and action can be investigated.

The purpose of this paper is to study the determinants of the use of personal loans in small and medium‐sized enterprises (SMEs).

Personal loans are addressed as a function of the borrower and collateral. To empirically test the hypothesis of this study, a probit model was applied to a group of companies in Bahia Blanca, Argentina, with a previous analysis of the possible effects of sample selection.

Older companies, firms with lower expected growth rates, younger owners, those who seek to create value or growth, and owners who perceive low emotional costs associated with bankruptcy, are less likely to use personal loans to finance their operations.

This study is limited by the availability of data on SMEs in Argentina.

The results highlight the importance of financial aid programmes that focus on SME scarce availability of collateral.

This study makes three principal contributions: first, it investigates the phenomenon of personal loan utilisation in SMEs; second, it analyses financing decisions from both the supply and demand perspectives; and third, it presents a database that includes variables that have not been previously studied in Argentina or other emerging economies.