Arbitrage between capital sources in entrepreneurial firms: a foreword note

Abstract

One of the distinctive features of entrepreneurial fi nance is the notoriously narrow scope of arbitrage between alternative sources of fi nancial capital. Available sources are, in reality, rather few. Th e growth-committed entrepreneurial fi rm in the early stages of its production life, or an old one engaging in a new project, typically relies on a much smaller range of possible fi nancial sources than those of a wellestablished corporate fi rm. While the former typically cannot gain access to externally traded equity and traded debt by appealing to the markets of stocks and securities, the latter can access these markets while benefi ting from a wide range of possible alternatives.Th e particular situation of a growth-committed entrepreneurial fi rm can best be evaluated with reference to the general case of a listed fi rm with full potential access to all capital markets. With reference to the balance sheet structure, a general fi rm's capital can be defi ned as the set of assets whose acquisition is fi nanced by a set of funds and liabilities. Depending on which side of the balance sheet is taken into account, the term 'capital structure' has the meaning of the composition of the fi rm's employed capital (assets) or the composition of fi nancial capital (funds and liabilities) obtained from various sources. Th e structure of assets is primarily determined by technological and productive conditions, while the structure of funds and liabilities is primarily determined for fi nancial reasons.Th e assets can be distinguished as long-lived (fi xed) and short-lived (current) assets, whereas the fi nancial resources can be distinguished as owners' funds and liabilities. Th e most important eff ect of the distribution of fi nancial resources