The Happy Story of Small Business Financing
34 Pages Posted: 24 Feb 2005
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: Suggested Citation