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Understanding the Small Enterprise Financial Objective Function

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  • Richard G. P. McMahon
  • Anthony M. J. Stanger

Abstract

This paper presents views on the small enterprise financial objective function that are sympathetic to existing financial thought, but which capture complexities arising in small enterprises that frequently receive minimal attention in the mainstream finance literature. It is argued that the small enterprise financial objective function should reflect the kinds of enterprise-specific risk that typically exist in small enterprises arising from liquidity, diversification, transferability, flexibility, control, and accountability considerations. A conceptualization of the small enterprise financial objective function by extension of conventional utility theory is presented. It is believed the resulting utility function holds promise as an explanatory framework for financial behavior in small enterprises in that it provides valuable insights into owner-manager decision making and small enterprise development. Consideration is also given to asset pricing model, which consequently might be used in small enterprise financial management.

Suggested Citation

  • Richard G. P. McMahon & Anthony M. J. Stanger, 1995. "Understanding the Small Enterprise Financial Objective Function," Entrepreneurship Theory and Practice, , vol. 19(4), pages 21-39, July.
    • Handle: RePEc:sae:entthe:v:19:y:1995:i:4:p:21-39
    DOI: 10.1177/104225879501900403
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    References listed on IDEAS

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    1. Philip L. Cooley & Charles E. Edwards, 1983. "Financial Objectives of Small Firms," Entrepreneurship Theory and Practice, , vol. 8(1), pages 27-31, July.
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    2. Elżbieta Bukalska & Marek Zinecker & Michał Bernard Pietrzak, 2021. "Socioemotional Wealth (SEW) of Family Firms and CEO Behavioral Biases in the Implementation of Sustainable Development Goals (SDGs)," Energies, MDPI, vol. 14(21), pages 1-15, November.
    3. Ardita Todri & Francesco Scalera, 2016. "“Getting Big by Thinking Small”: An Empirical Analysis from Trading SME’s," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(8), pages 1-1, July.
    4. Simon, Mark & Houghton, Susan M. & Savelli, Sonia, 2003. "Out of the frying pan...?: Why small business managers introduce high-risk products," Journal of Business Venturing, Elsevier, vol. 18(3), pages 419-440, May.
    5. José Rodrigues de Jesús & Luís Miranda da Rocha & Rui Couto Viana, 2001. "Avaliação de Pequenas e Médias Empresas e Gestão de Risco," FEP Working Papers 110, Universidade do Porto, Faculdade de Economia do Porto.
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    7. Romano, Claudio A. & Tanewski, George A. & Smyrnios, Kosmas X., 2001. "Capital structure decision making: A model for family business," Journal of Business Venturing, Elsevier, vol. 16(3), pages 285-310, May.
    8. Dressler, Jonathan B. & Tauer, Loren W., 2012. "An Estimate of Socioemotional Wealth in the Family Business," Working Papers 128814, Cornell University, Department of Applied Economics and Management.
    9. Ekanem, Ignatius, 2005. "‘Bootstrapping’: the investment decision-making process in small firms," The British Accounting Review, Elsevier, vol. 37(3), pages 299-318.
    10. Anneleen Michiels & Jelle Schepers & Pieter Vandekerkhof & Alessandro Cirillo, 2021. "Leasing as an Alternative Form of Financing within Family Businesses: The Important Advisory Role of the Accountant," Sustainability, MDPI, vol. 13(12), pages 1-17, June.
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