Asset-Backed vs. Competence-Driven Leverage: The Next Entrepreneural Finance Challenge - Evidences from the Italian Experience in Finance For Growth
Guido Max Mantovani
Ca' Foscari University in Venice – Department of Management; EM Strasbourg - Business School
December 15, 2011
We demonstrate that the capital structures of small business is mainly driven by asset-backed concept, particularly by the most liquid part of them, i.e. the operating working capital. Return-to-risk analysis is very less relevant because of its misrepresentation in standard financial reporting system, while long term persistence of optimal return-to-risk ratios is important only for equity funders, i.e. competence value contributors. In the case of the very competitive Treviso’s District in the North-Eastern Italy this context produces a very low-selective financial system. Banks are the main funders of SMEs but their credit allowances seems to flow only to huge-working capital and short term (low-)performers companies: actually a factoring service. In this financial context any allocative selection of corporation to be funded seems to be impossible, reducing both market efficiency along with their completeness through long term growth ratio and entrepreneurial finance development.
Number of Pages in PDF File: 29
Keywords: Capital Structure, Valuation, Incomplete markets, SME
JEL Classification: G13, G24, G32, L26, M13
Date posted: December 15, 2011 ; Last revised: March 28, 2013
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