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An Empirical Analysis of the Financial Structure of Small and Large Australian Manufacturing Enterprises

Author

Listed:
  • Scott Holmes

    (Queensland University of Technology)

  • Pam Kent

    (University of Queensland)

Abstract

The small business literature frequently refers to the concept of a “finance gap” in order to explain differences in the capital structures of small and large firms. However, little evidence, if any, exists to support this “finance gap” explanation. This paper, while canvassing the finance gap literature, offers an alternative explanation —Myers’ Pecking Order Framework. This framework focuses on management funding preferences as a major factor in the capital structure of firms. In order to test the applicability of this view, a mail survey was conducted for small and large firms operating in the Metal Trades sub-sector of the Australian Manufacturing sector. The responses provided detailed information on the types of debt used by small and large firms. While recognizing the limitations of mail surveys and the restricted information permissible in such surveys, the results provide a unique opportunity to compare the capital structures of small and large firms. Overall, the results support the proposition that capital structure is influenced by Myers’ Pecking Order Framework and that differences between small and large firms may be attributed to small firms operating under a “constrained” pecking order.

Suggested Citation

  • Scott Holmes & Pam Kent, 1991. "An Empirical Analysis of the Financial Structure of Small and Large Australian Manufacturing Enterprises," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(2), pages 141-154, Winter.
    • Handle: RePEc:pep:journl:v:1:y:1991:i:2:p:141-154
    as

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    References listed on IDEAS

    as
    1. Gupta, Manak C, 1969. "The Effect of Size, Growth, and Industry on the Financial Structure of Manufacturing Companies," Journal of Finance, American Finance Association, vol. 24(3), pages 517-529, June.
    2. Garvin, W J, 1971. "The Small Business Capital Gap: The Special Case of Minority Enterprise," Journal of Finance, American Finance Association, vol. 26(2), pages 445-457, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Manufacturing; Capital Structure; Small Firm; Australia;
    All these keywords.

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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