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Capital Structure Decisions of French Very Small Businesses

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  • Nihat Aktas
  • Ingrid Bellettre
  • Jean-Gabriel Cousin

Abstract

Very small businesses (VSB) experience financing constraints unlike those encountered by larger companies; however, they are rarely studied. Their unique characteristics, including the important information asymmetry they suffer and the predominant role of their shareholder-manager, may be well suited to a pecking order theory framework as a means to analyze their capital structure decisions. Specifically, VSB financing choices appear to follow a hierarchical order, such that they prefer internal to external financing and debt to stock issuance. Using a sample of 393,662 firm-year observations from 56,605 individual French VSB, this study shows that the pecking order theory can explain most of their financing decisions. In addition, a change in debt relates asymmetrically to financing deficit. Firms with a positive deficit rely almost entirely on debt for financing, whereas firms with a negative deficit (excess of financing) behave more conservatively and are less likely to repay their debts spontaneously in advance.

Suggested Citation

  • Nihat Aktas & Ingrid Bellettre & Jean-Gabriel Cousin, 2011. "Capital Structure Decisions of French Very Small Businesses," Finance, Presses universitaires de Grenoble, vol. 32(1), pages 43-73.
    • Handle: RePEc:cai:finpug:fina_321_0043
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    Cited by:

    1. Hubert Tchakoute Tchuigoua, 2015. "Capital Structure of Microfinance Institutions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(3), pages 313-340, June.
    2. Adusei, Michael & Obeng, Emmanuella Yaa Takyiwah, 2019. "Board gender diversity and the capital structure of microfinance institutions: A global analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 258-269.

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