IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v77y2025ics1544612325002703.html
   My bibliography  Save this article

Internal retention, shareholding structure, and equity financing capacity of innovative small and medium-sized enterprises

Author

Listed:
  • Liang, Huaguo
  • Huang, Wanran
  • Zhao, Weijie
  • Zhou, Jin

Abstract

This study investigates the relationship between internal retention and equity financing ability of innovative small and medium-sized enterprises (SMEs) using data from the National Small and Medium-sized Enterprise Stock Transfer System (NSSE) spanning from 2011 to 2022. The findings reveal a significant negative correlation between internal retention and equity financing ability, suggesting that as internal retention increases, firms tend to rely less on external equity financing. Furthermore, the study finds that the gearing ratio positively moderates this relationship, indicating that a higher gearing ratio may help mitigate the adverse impact of internal retention on equity financing. Additional analyses show that the retained earnings ratio is positively associated with firm profitability, and an increase in retained earnings enhances profitability, thereby reducing the need for external equity financing.

Suggested Citation

  • Liang, Huaguo & Huang, Wanran & Zhao, Weijie & Zhou, Jin, 2025. "Internal retention, shareholding structure, and equity financing capacity of innovative small and medium-sized enterprises," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002703
    DOI: 10.1016/j.frl.2025.107006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612325002703
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2025.107006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Chiappini, Raphaël & Montmartin, Benjamin & Pommet, Sophie & Demaria, Samira, 2022. "Can direct innovation subsidies relax SMEs’ financial constraints?," Research Policy, Elsevier, vol. 51(5).
    2. Khan, Safi Ullah, 2022. "Financing constraints and firm-level responses to the COVID-19 pandemic: International evidence," Research in International Business and Finance, Elsevier, vol. 59(C).
    3. De Crescenzo, Veronica & Ribeiro-Soriano, Domingo Enrique & Covin, Jeffrey G., 2020. "Exploring the viability of equity crowdfunding as a fundraising instrument: A configurational analysis of contingency factors that lead to crowdfunding success and failure," Journal of Business Research, Elsevier, vol. 115(C), pages 348-356.
    4. Gyourko, Joseph & Shen, Yang & Wu, Jing & Zhang, Rongjie, 2022. "Land finance in China: Analysis and review," China Economic Review, Elsevier, vol. 76(C).
    5. Beladi, Hamid & Deng, Jie & Hu, May, 2021. "Cash flow uncertainty, financial constraints and R&D investment," International Review of Financial Analysis, Elsevier, vol. 76(C).
    6. Mohsin, Muhammad & Taghizadeh-Hesary, Farhad & Panthamit, Nisit & Anwar, Saba & Abbas, Qaiser & Vo, Xuan Vinh, 2021. "Developing Low Carbon Finance Index: Evidence From Developed and Developing Economies," Finance Research Letters, Elsevier, vol. 43(C).
    7. Shuwaikh, Fatima & Dubocage, Emmanuelle, 2022. "Access to the Corporate Investors' Complementary Resources: A Leverage for Innovation in Biotech Venture Capital-Backed Companies," Technological Forecasting and Social Change, Elsevier, vol. 175(C).
    8. Chen, Xu & Li, Zhongshu & Gallagher, Kevin P. & Mauzerall, Denise L., 2021. "Financing carbon lock-in in developing countries: Bilateral financing for power generation technologies from China, Japan, and the United States," Applied Energy, Elsevier, vol. 300(C).
    9. Meoli, Michele & Vismara, Silvio, 2021. "Information manipulation in equity crowdfunding markets," Journal of Corporate Finance, Elsevier, vol. 67(C).
    10. Polzin, Friedemann & Sanders, Mark & Serebriakova, Alexandra, 2021. "Finance in global transition scenarios: Mapping investments by technology into finance needs by source," Energy Economics, Elsevier, vol. 99(C).
    11. McKillop, Donal & French, Declan & Quinn, Barry & Sobiech, Anna L. & Wilson, John O.S., 2020. "Cooperative financial institutions: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 71(C).
    12. Alharbi, Samar S. & Al Mamun, Md & Boubaker, Sabri & Rizvi, Syed Kumail Abbas, 2023. "Green finance and renewable energy: A worldwide evidence," Energy Economics, Elsevier, vol. 118(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Si & Wang, Zanxin, 2025. "Climate change and listed agricultural companies’ risk-taking," International Review of Economics & Finance, Elsevier, vol. 99(C).
    2. Skare, Marinko & Gavurova, Beata & Polishchuk, Volodymyr, 2023. "A decision-making support model for financing start-up projects by venture capital funds on a crowdfunding platform," Journal of Business Research, Elsevier, vol. 158(C).
    3. Bai, Chengyu & Zheng, Jun, 2024. "Moderating effect of business environment on the relationship between fiscal science and technology expenditure and venture capital," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    4. Borojo, Dinkneh Gebre & Yushi, Jiang & Gong, Xueting & Zhang, Hongyu & Miao, Miao, 2024. "The heterogeneous impacts of climate finance on energy efficiency and renewable energy production in developing countries," Renewable Energy, Elsevier, vol. 236(C).
    5. Li, Yuantian & Xu, Haoyu & Li, Huiru & Xu, Yingming, 2025. "Environmental regulation, opening up to the outside world, and regional green industry development: Policy effects and optimization strategies," Finance Research Letters, Elsevier, vol. 75(C).
    6. Sophie Pommet & Alexandra Rufini & Dominique Torre, 2024. "The role of lead investors in equity crowdfunding campaigns with a secondary market," Small Business Economics, Springer, vol. 63(1), pages 243-273, June.
    7. He, Bingquan & Gan, Lu, 2025. "Exploring the synergistic effect of CEO power and technological expertise in driving corporate digital transformation," International Review of Financial Analysis, Elsevier, vol. 98(C).
    8. Lau, Chi Keung & Padhan, Hemachandra & Kumar Das, Amit & Tiwari, Aviral Kumar & Gozgor, Giray & Jain, Preksha, 2025. "The role of green bonds on industrial sustainability for achieving carbon neutrality: Evidence from the artificial neural network method," Research in International Business and Finance, Elsevier, vol. 73(PB).
    9. Alexandra Mora-Cruz & Pedro R. Palos-Sanchez, 2023. "Crowdfunding platforms: a systematic literature review and a bibliometric analysis," International Entrepreneurship and Management Journal, Springer, vol. 19(3), pages 1257-1288, September.
    10. Sun, Xialing & Meng, Zheng & Zhang, Xuchao & Wu, Jiaxi, 2025. "The role of institutional quality in the nexus between green financing and sustainable development," Research in International Business and Finance, Elsevier, vol. 73(PA).
    11. Guo, Xiaoxu & Liu, Nan, 2024. "The industrial internet and green technology innovation," Finance Research Letters, Elsevier, vol. 66(C).
    12. Shao, Wenbo & Chen, Yufan & Zhu, Huan, 2025. "Does the “Braking” of China's land finance facilitate economic “Shift Gears”? Evidence from investment decisions of real firms," Structural Change and Economic Dynamics, Elsevier, vol. 73(C), pages 223-237.
    13. Modina, Michele & Pietrovito, Filomena & Gallucci, Carmen & Formisano, Vincenzo, 2023. "Predicting SMEs’ default risk: Evidence from bank-firm relationship data," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 254-268.
    14. Bin He & Xin Yuan & Shusheng Qian & Bing Li, 2023. "Product low‐carbon design, manufacturing, logistics, and recycling: An overview," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 12(5), September.
    15. Tan, Xiujie & Yan, Yaxue & Dong, Yuyang, 2022. "Peer effect in green credit induced green innovation: An empirical study from China's Green Credit Guidelines," Resources Policy, Elsevier, vol. 76(C).
    16. Xu, Siyun & Bai, Xiaodong & Chen, Xia, 2025. "Corporate environmental, social, and governance performance, investor attention, and corporate development capability—An empirical examination based on moderating and threshold effects," International Review of Financial Analysis, Elsevier, vol. 102(C).
    17. Garcia, Alexandre Schwinden & Gonzaga, André Lucas Moreira, 2024. "How credit unions affect the profitability of Brazilian commercial banks?," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 190-209.
    18. Wang, Yafei & Shi, Ming & Zhao, Zihan & Liu, Junnan & Zhang, Shiqiu, 2025. "How does green finance improve the total factor energy efficiency? Capturing the mediating role of green management innovation and embodied technological progress," Energy Economics, Elsevier, vol. 142(C).
    19. Ghosh, Saurabh & Mazumder, Debojyoti, 2023. "Do NBFCs propagate real shocks?," Journal of Asian Economics, Elsevier, vol. 85(C).
    20. Sandra Correia & Miguel Sousa & Elísio Brandão, 2024. "What do we know about the choices of entrepreneurs before the equity crowdfunding campaign?," Small Business Economics, Springer, vol. 63(4), pages 1471-1501, December.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002703. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.