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Regional Financial System and the Financial Structure of Small Firms

Author

Listed:
  • Prashanth Mahagaonkar

    (Max Planck Institute of Economics, Jena, Germany)

  • Swayan Chaudhuri

    (Newcastle University)

Abstract

The capital structure of firms is known to be different not only due to firm characteristics but also to the sources of capital. Therefore, there is a need to understand the supply side effects on a firm´s capital structure. A small firm´s choice of financing sources may be limited by the supply-side financial endowment of the region. Small firms are known to be heavily reliant on internal finance and the quantity and price channels are expected to drive usage of debt. Our findings on 2000 small firms in England show that the quantity and price channels might work only for supply of very local capitals. Firms tend to prefer internal finance when semi-local or national institutions show higher commercial operational distance in their region. These results point out that semi-local and national institutions tend to drive away usage of debt due to monitoring costs or credit rationing, while very local institutions increase the usage of debt through quantity or price channels.

Suggested Citation

  • Prashanth Mahagaonkar & Swayan Chaudhuri, 2009. "Regional Financial System and the Financial Structure of Small Firms," Jena Economics Research Papers 2009-011, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2009-011
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2009/wp_2009_011.pdf
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    Cited by:

    1. Makovleva, Ekaterina (Маковлева, Екатерина), 2018. "Tools and Methods for Resistance to Unfair Execution of a Government Contract [Инстурменты И Методы Противодействия Недобросовестному Исполнению Государственного Контракта]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 62-81, June.

    More about this item

    Keywords

    capital structure; regional financial system; information asymmetries; geography;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N2 - Economic History - - Financial Markets and Institutions
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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