Capital Structure at Inception and the Short-Run Performance of Micro-Firms
AbstractThis paper examines the financial structure and performance of a sample of 150 young micro-firms. Their average age is one and a half years; and their average size is three full-time employees. Short-run performance is measured over one year, in terms of continuing to trade, and the evidence is analysed using a split sample comparison, and probit analysis. The general finding is that financial structure is not a major determinant of performance in this, the very earliest, phase of the life-cycle of the micro-firm. Whilst it is possible to identify specific financial features which may favour survival (e.g. the availability of trade credit) or may threaten survival (e.g. the use of extended purchase commitments), conventional features of financial structure (e.g. assets, gearing) do not play a significant role. However, other (non-financial) explanations of early-stage survival are available, invluding the use of advertising and business planning, and the avoidance of precipitate product innovation. This suggests that market features and internal organisation of the micro-firm may dominate financial structure as determinants of survival in the very earliest phase of the life-cycle.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9607.
Date of creation: Oct 1996
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Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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