Download This PaperTheories of financing for entrepreneurial firms: a review
Forthcoming in International Review of Entrepreneurship
46 Pages Posted: 14 Dec 2022
Date Written: December 9, 2022
Abstract
This article provides an overview of literature related to capital structure theories for entrepreneurial firms. It identifies gaps and controversial areas in existing literature and also discusses potential directions for future research. Credit rationing, signalling by risk-bearing, the learning market demand idea, and the flexibility theory of capital structure are consistent with many patterns of financing of entrepreneurial firms. Credit rationing is the dominant area of research. Several directions have emerged that need answers such as for example which channel of credit rationing represents its main driving force. More empirical research is expected in signalling by risk-bearing. More theoretical and empirical research is expected regarding learning market demand and flexibility ideas. Pecking-order theory and trade-off theory play a significant role in large corporations but not so much in SMEs. More research is required investigating modified versions of each theory.
Keywords: entrepreneurial finance, small business financing, capital structure, credit rationing, signalling by risk-bearing, flexibility theory, learning market demand
JEL Classification: F30, G15, G18, G21, G24, G28, G32, G38, M13
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