The Happy Story of Small Business Financing

34 Pages Posted: 24 Feb 2005

See all articles by Ed Vos

Ed Vos

University of Waikato - Department of Economics and Finance

Andrew Jia-Yuh Yeh

Reserve Bank of New Zealand - Financial System Policy Team

Sara Carter

University of Strathclyde - Department of Marketing

Stephen Tagg

University of Strathclyde - Department of Marketing

Abstract

This paper paints a pattern of financial behaviour across two data sets, one from the UK (n=15,750) and one from the US (n=3,661). This pattern is consistent with the theme that SME financial behaviour demonstrates substantial financial contentment, or 'happiness', of entrepreneurs. By focusing on SME use of external sources of funds, we suggest that utility maximization is observed in the financial behaviour of SMEs. We find that SMEs appear to be a non-growth orientated, or 'sustainable', form of business. SMEs that more interested in growth participate more in the use of and access to external sources of funds. We find that the SME owner's characteristics, not the firm's characteristics matter most in determining the use of external funds, with 'wisdom' (age, experience and education) and gender (women) being generally negatively related to the use of external funds. However, even after controlling for inter-temporal conditionality, some questions relating to the source of and ultimate level of this contentment remain, leading to the "?" in the title.

Keywords: Small- to medium-sized enterprises, small business financing, informational opacity, funding gaps, growth, human capital, sustainability

JEL Classification: D82, G19, G29, L33

Suggested Citation

Vos, Ed and Yeh, Andrew Jia-Yuh and Carter, Sara and Tagg, Stephen, The Happy Story of Small Business Financing. Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=671263

Ed Vos

University of Waikato - Department of Economics and Finance ( email )

Hamilton, 3105
New Zealand

Andrew Jia-Yuh Yeh (Contact Author)

Reserve Bank of New Zealand - Financial System Policy Team ( email )

2 The Terrace
P.O. Box 2498
Wellington
New Zealand
+644 471 3809 (Phone)

HOME PAGE: http://www.rbnz.govt.nz

Sara Carter

University of Strathclyde - Department of Marketing ( email )

Glasgow, Scotland
United Kingdom

Stephen Tagg

University of Strathclyde - Department of Marketing ( email )

Glasgow, Scotland
United Kingdom

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