Growth History, Knowledge Intensity and Capital Structure in Small Firms

Statistics Canada Economic Analysis (EA) Research Paper Series, 11F0027 No. 006

22 Pages Posted: 6 Aug 2009

See all articles by Guy Gellatly

Guy Gellatly

Statistics Canada

Stewart Thornhill

University of Michigan, Stephen M. Ross School of Business

Allan Riding

affiliation not provided to SSRN

Date Written: August 6, 2003

Abstract

This paper explores the financial characteristics of successful Canadian small- and medium-sized enterprises (SMEs). It asks whether industry membership and early growth history play a role in shaping these financial characteristics. Industry comparisons are based on production activity and knowledge intensity. Growth distinctions are based on the firm’s employment and sales history. We evaluate our hypotheses with survey data from a stratified random sample of 2,775 Canadian firms. Proportional weighting techniques are utilized in all analyses. Our study reveals a strong correlation between capital structure and knowledge intensity. In contrast, growth histories are not obvious determinants of financial structure. Results also suggest that leverage strategies are more apparent in low-knowledge industries, in firms with higher expectations of future performance, and in businesses with more balanced financial structures.

Keywords: capital structure, SME, firm growth, knowledge-based industries

JEL Classification: O1, L21, O3

Suggested Citation

Gellatly, Guy and Thornhill, Stewart and Riding, Allan, Growth History, Knowledge Intensity and Capital Structure in Small Firms (August 6, 2003). Statistics Canada Economic Analysis (EA) Research Paper Series, 11F0027 No. 006, Available at SSRN: https://ssrn.com/abstract=1402904 or http://dx.doi.org/10.2139/ssrn.1402904

Guy Gellatly (Contact Author)

Statistics Canada ( email )

Micro-Economic Analysis Division 24-B R.H. Coats Building
Ottawa, Ontario K1A 0T6
Canada
613-951-3758 (Phone)
613-951-5403 (Fax)

Stewart Thornhill

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Allan Riding

affiliation not provided to SSRN ( email )