Debt Financing of Small OTC Firms Reporting to the SEC

59 Pages Posted: 14 Oct 2020 Last revised: 28 Mar 2021

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Claire Y.C. Liang

Georgetown University

Rengong Zhang

City University of Hong Kong (CityU)

Date Written: December 5, 2020


Although the concept of financial growth cycle proposed by Berger and Udell (1998) is intuitively appealing, empirical evidence has been scarce due to data limitations. In this study, we use a novel data set, small emerging firms trading on the OTC market and filing annual reports with the SEC, to provide empirical support for the financial growth-cycle paradigm. We find that as firms develop and gain track records, their debt usage increases and debt specialization decreases, suggesting a gradual easing of supply-side constraints. Further, positive sales and positive cash flows mark two milestones in debt financing: Positive sales broaden the firms’ access to various segments of the debt market, and positive cash flows deepen their relationships with banks. We also examine binary features of debt in our sample and find that convertible debt peaks when firms start generating sales, and firms increasingly rely on secured debt as they grow.

Keywords: Small firm finance; Entrepreneurial finance; Over-the-counter (OTC) firms; Debt finance; Financial growth cycle

JEL Classification: G32; G21; G23

Suggested Citation

Cole, Rebel A. and Liang, Claire Y.C. and Zhang, Rengong, Debt Financing of Small OTC Firms Reporting to the SEC (December 5, 2020). Available at SSRN: or

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)


Claire Y.C. Liang (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

Rengong Zhang

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics