The Cost of Equity Capital for Small Business

Boyer, Patricia A.; Roth, H

doi:10.1177/104225877600100201

Cited by 10 publications

(5 citation statements)

References 1 publication

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“…Preference for control, lifestyle objectives and job security has been shown to be more important to owner-managers than rates of return (Boyer and Roth, 1978;Poutziouris, 2001). PE investors, on the other hand, are generally concerned with finding opportunities that will yield high returns on investments with manageable risk.…”

Section: Empathy Gapmentioning

confidence: 99%

The effect of finance, knowledge and empathy gaps on the use of private equity amongst family-owned SMEs

Seet

Graves

Hadji

et al. 2010

IJESB

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This paper presents the findings of exploratory research into the challenges that small-to-medium-sized family-owned enterprises (SMFEs) face when engaging with the private equity (PE) sector. This study, conducted through interviews of SMFE owners, PE firms and family business professional advisors in South Australia, indicates that there are three large gaps between SMFE owners vis-à-vis the PE community: 1 a finance gap 2 a knowledge gap 3 an empathy gap.The results of this study also suggest that these gaps interact with each other to exacerbate the overall gap, and that some professional advisors were found to contribute to (rather than bridge) these gaps. This paper concludes with a revised conceptual framework model for the better understanding of the barriers to and opportunities for SMFEs to gain access to PE and some suggestions as to how professional bodies and trade associations can facilitate the process.

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Section: Empathy Gapmentioning

confidence: 99%

The effect of finance, knowledge and empathy gaps on the use of private equity amongst family-owned SMEs

Seet

Graves

Hadji

et al. 2010

IJESB

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show abstract

“…Business owners must incur bonding and monitoring costs-so-called agency costs-in order to align manager goals with their own goals. In this context, the "private benefits of control" theory describes the (owner-) managers' opportunistic behavior to the detriment of other external, minority shareholders (Boyer & Roth, 1978;Demsetz & Lehn, 1985;Jensen & Meckling, 1976). Ehrhardt and Nowak (2003) subclassify the different types of private benefits along the axis of "financial" and "nonfinancial" and by doing so they acknowledge the relevance of both types.…”

Section: Financial Business Value Financial Theorymentioning

confidence: 99%

Emotional Returns and Emotional Costs in Privately Held Family Businesses: Advancing Traditional Business Valuation

Astrachan

Jaskiewicz

2008

Family Business Review

402

240

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This article introduces a formula to assess the total value of privately held family businesses from the owner's perspective. It is argued that the total value of a business is not only composed of its financial worth and private benefits, as is usually assumed by traditional financial theory, but that emotional components also have an impact on valuation. In particular, it is assumed that emotional returns (ER) positively affect total value, whereas emotional costs (EC) negatively affect total value. Even though every stakeholder faces emotional costs and returns, it is solely the family business owner who ultimately decides on the worth of a business and consequently factors ER‐EC into his or her valuation. The presented formula provides a better understanding of investment decisions in family businesses and a more accurate valuation of these businesses.

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“…One of the strongest stylised facts from the entrepreneurship literature is that independence is the primary objective of owner-managers in small firms (Boyer and Roth, 1978;Cooley and Edwards, 1983;Ang, 1991 and1992;Mac Mahon et al, 1993;LeCornu et al, 1996). The unwillingness of owner-managers to relinquish control will predispose them to self-funding (Cosh and Hughes, 1994;Poutziouris, Chittenden and Michaelas, 1998;Berger and Udell, 1998).…”

Section: The Non-financial Objectives Of Foundersmentioning

confidence: 99%

“…In order to obtain outside equity, owner-managers must cede some control and considerable freedom in decision-making. In the SME literature, independence is usually cited as the main motive for starting a business, and it is well established that the ownermanager's desire to remain independent affects the decision-making process (Boyer and Roth, 1978;Cooley and Edwards, 1983;Ang, 1991 and1992;Mac Mahon et al, 1992;LeCornu et al, 1996).…”

Section: Controlmentioning

confidence: 99%

What factors determine the use of venture capital? evidence from the Irish software sector

Hogan

Hutson

2005

Venture Capital

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We address the venture capital financing issue from the firm's perspective. Using survey data for 110 new technology-based firms (NTBFs) in the Irish software sector, we assess the extent to which 5 human capital and 3 other variables determine the firm's use of venture capital. Education of the lead founder to degree level is the only significant human capital variable, and it is directly related to the likelihood of being venture capitalbacked. Venture capital-backed firms have significantly higher start-up costs, and their founders are less averse to loss of control than nonventure capital-backed firms. We conclude that the use of venture capital is dictated largely by the willingness of founders to relinquish control.

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The Cost of Equity Capital for Small Business

Cited by 10 publications

References 1 publication

The effect of finance, knowledge and empathy gaps on the use of private equity amongst family-owned SMEs

The effect of finance, knowledge and empathy gaps on the use of private equity amongst family-owned SMEs

Emotional Returns and Emotional Costs in Privately Held Family Businesses: Advancing Traditional Business Valuation

What factors determine the use of venture capital? evidence from the Irish software sector

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