Small–Scale Entrepreneurship and Access to Capital in Peripheral Locations: An Empirical Analysis

Abstract

This paper presents an analysis of a public assistance program for small-scale entrepreneurship in peripheral areas. Public assistance compensates for market inefficiencies where the decision rules of financial institutions discriminate against otherwise viable small firms in capital markets. Lending institutions perceive high risk in providing debt capital when little information is present. Using empirical data from Israel, the determinants of this risk are estimated and the role of location in creating this information asymmetry is stressed. These results empirically establish that (1) location matters in determining the risk profile of the firm, (2) locationally targeted programs can reduce the information asymmetries that make peripheral firms unattractive to lenders, and (3) these programs can also generate positive welfare effects. Finally, there is speculation on the potential role of ICT (information and communications technology) in increasing the visibility of small firms in remote locations and creating a more symmetrical flow of information. Copyright 2000 Gatton College of Business and Economics, University of Kentucky.

What Kind of Entrepreneurship Drives Regional Development in European Non-core Regions? A Literature Review on Empirical Entrepreneurship Research

“…There is, however, a caveat: Toedtling andKaufmann (2001, p. 1215) generally note for peripheral regions "a low level of R&D and innovation due to a dominance of SMEs in traditional industries, weakly developed firm clusters, few knowledge providers and a weak endowment with innovation support institutions". Such lack of favourable preconditions calls for specific and scrutinized public assistance in order to stimulate the intended catalyst function of SMEs in noncore regions (Felsenstein & Fleischer, 2002;North & Smallbone, 2000b).…”

Entrepreneurship and rural economic development: a scenario analysis approach

“…Efforts to improve this are focused on technology promotion with Welsh Development Agency (WDA) support for creating IT parks in Mid Wales and a Technium linked to the University in Aberystwyth (see Galloway et al's (2004) study of ICT-enabled collectivity as a positive rural business strategy). Capital support is offered through guarantees and public loans but there is no locational differentiation of the kind suggested by Felsenstein and Fleischer (2002). Indeed, the lack of overall discrimination between problems of urban decay in the former industrial Valleys and rural disadvantage elsewhere in the Objective One region is a major criticism (Brooksbank et al, 2001).…”

“…Lower rates of capital provision in rural areas constrain growth further (Cowling, 1997). Felsenstein and Fleischer (2002) argue that information asymmetry concerning firm characteristics and potential causes lending institutions to under invest in rural firms and consequently make the case for locationally targeted public support for risk capital.…”

Evaluation of Deadweight Spending in Regional Enterprise Financing

“…FELSENSTEIN and FLEISCHER, 2002). This is the first paper addressing regional differences in deadweight spending, and thus, it has developed new methods for determining overall deadweight spending.…”