Capital structure and the firm’s life stage

Frielinghaus, A.; Mostert, Bastian; Firer, Colin

doi:10.4102/sajbm.v36i4.640

Cited by 61 publications

(48 citation statements)

References 35 publications

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“…During the birth stage of the business cycle, businesses are usually organized in a simple and informal structure and success in this stage is achieved through trial in generating distinctive competences and seeking a sustainable market niche to continue as a viable entity (Kallunki and Silvola, 2008). Firms at this stage usually have net cash outflows because they make investments to expand (Frielinghaus et al, 2005) and have relatively low profits (Marshall and Heffes, 2004). Therefore, young firms are often financed by equity capital to sustain their business, which also signals their high growth potential (Fluck, 2000).…”

Section: Business Life Cyclementioning

confidence: 99%

“…Moreover, when businesses grow rapidly, they rely heavily on external financial markets to raise capital for investment and existing activities, and their demand for capital is greater than their ability to generate cash internally (Lemmon and Zender, 2010). Marketing also plays a pronounced role, with extensive product ranges and limited decentralization of power making firms increasingly less sensitive to market changes (Frielinghaus et al, 2005). The growth stage ends as the growth of sales starts to slow down.…”

Section: Business Life Cyclementioning

confidence: 99%

“…They may also need to adjust their financing structure (e.g. recapitalization) when they have insufficient resources (Frielinghaus et al, 2005).…”

Section: Business Life Cyclementioning

confidence: 99%

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Business Life Cycle and Capital Structure: Evidence from Chinese Manufacturing Firms

Tian

Han

Zhang

2015

China and World Economy

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This paper uses a panel data-fixed effect approach and data collected from Chinese public manufacturing firms between 1999 and 2011 to investigate the impacts of business life cycle stages on capital structure. We find that cash flow patterns capture more information on business life cycle stages than firm age and have a stronger impact on capital structure decision-making. We also find that the adjustment speed of capital structure varies significantly across life cycle stages and that non-sequential transitions over life cycle stages play an important role in the determination of capital structure. Our study indicates that it is important for policy-makers to ensure that products and financial markets are well-balanced.

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Section: Business Life Cyclementioning

confidence: 99%

Section: Business Life Cyclementioning

confidence: 99%

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Business Life Cycle and Capital Structure: Evidence from Chinese Manufacturing Firms

Tian

Han

Zhang

2015

China and World Economy

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“…Analyses of financing decisions of start-ups and young enterprises have to take into account that these firms are largely dependent on their owners and the boundaries between firms as organizations and entrepreneurs as persons are often not clear-cut (Åstebro and Bernhardt 2003;Cassar 2004). Thus, financing decisions of young firms rely disproportionately on the preferences of the business founders, for example, regarding risk and control over their firms, and not only on the characteristics of businesses itself (Bhaird and Lucey 2010;Frielinghaus, Mostert, and Firer 2005;Heger and Tykvova 2009). Entrepreneurs' personal characteristics like gender, age, migration background, or start-up experience are thus often included into empirical analyses of start-up financing (e.g., Achleitner, Braun, and Kohn 2011;Blanchflower, Levine, and Zimmerman 2003;Cassar 2004;Cavalluzzo and Cavalluzzo 1998;Coleman and Robb 2009;Verheul and Thurik 2001;Winston Smith 2010).…”

Section: Related Literaturementioning

confidence: 99%

The Interdependence of R&D Activity and Debt Financing of Young Firms

Fryges¹,

Kohn²,

Ullrich³

2015

Journal of Small Business Management

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung der KfW und des ZEW dar.Dis cus si on Papers are inten ded to make results research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the KfW and ZEW. Non-technical SummaryBusiness start-ups and young enterprises introduce new products to the market and employ new processes for production. In order to create these new products and processes, firms often engage in R&D. Since conducting R&D is an expensive task, substantial financial resources are required. However, the internal financing capacity of young firms is limited because young firms generate no or a very low sales volume in the first years succeeding market entry, and no revenue reserves from previous years are available. In the case of limited internal financing, loans can relieve financing constraints on R&D activities. The relationship between R&D activities and loan financing can also be argued to go in the opposite direction. The ability of young enterprises to tap external financing sources depends, among other things, on growth opportunities which may be generated by R&D activities. Moreover, R&D expenditures are rather allocated into intangible assets that cannot serve as collaterals. This reduces a firm's possibility of loan financing.In this paper, we explore empirically the bidirectional relationship between R&D and loan financing. We In a first step, we estimate single-equation models that explain, first, the share of loan financing and, second, firms' R&D intensity, defined as R&D expenditures over total sales. Our estimates reveal that the share of loan financing is basically determined by firm-specific variables derived from traditional theories of corporate finance like static trade-off theory or pecking order theory. Entrepreneur-specific variables only play a subordinate role for explaining the capital structure. On the contrary, both firm-specific and entrepreneur-specific variables are decisive for the level of firms' R&D intensity. In the single-equation models, we find neither an effect of R&D intensity on the share of loan financing, nor an effect in the opposite direction.In a second step, we estimate a simultaneous, two-equation model in order to account for the interdependence of R&D activity and loan financing. Our results show that the coefficient estimates for the exogenous covariates hardly differ between the single-equation models and the simultaneous, two-equation model. However, the two-equation model proves that there is in fact a significantly positive, interdependent relationship between the share of loan financing and R&D intensity. Yet unobserved random shocks are negatively correlated across the two equations...

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“…External equity finance in the form of venture capital or a listing on the stock exchange is generally unavailable to SMEs. Frelinghaus et al (2005) observe that for SMEs internal equity is inadequate and external equity is unavailable, hence their reliance on debt finance even though it is not readily available to them, especially in developing countries. Stiglitz & Weiss (1981:395) call this phenomenon 'capital rationing'.…”

Section: Introductionmentioning

confidence: 99%

The impact of gender on SME characteristics and access to debt finance in South Africa

Garwe

Fatoki

2012

Development Southern Africa

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This study aimed to determine whether South African small and medium enterprises (SMEs) are affected by gender differences in demand for debt and its availability. It also looked at whether there are gender differences in the firm and entrepreneurial characteristics of SMEs. The study was conducted by means of a survey using a self-administered questionnaire and statistical analyses that included descriptive statistics, a t-test and a logistic regression. Significant gender differences were found in SMEs' demand for debt finance but only insignificant differences in availability. The findings also revealed significant gender differences in some of the firm and entrepreneurial characteristics of SMEs. It appears that for SME owners in South Africa gender differences exist in the demand for debt finance but not in its availability. The policy recommendation is that commercial banks, government agencies and non-governmental organisations should aim to help and encourage female SME owners to apply for debt finance.

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Capital structure and the firm’s life stage

Cited by 61 publications

References 35 publications

Business Life Cycle and Capital Structure: Evidence from Chinese Manufacturing Firms

Business Life Cycle and Capital Structure: Evidence from Chinese Manufacturing Firms

The Interdependence of R&D Activity and Debt Financing of Young Firms

The impact of gender on SME characteristics and access to debt finance in South Africa

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