SMALL FIRM GROWTH, ACCESS TO CAPITAL-MARKETS AND FINANCIAL STRUCTURE - REVIEW OF ISSUES AND AN EMPIRICAL-INVESTIGATION

This article investigates the financial structure of small firms with an emphasis on growth and access to capital markets. Neo-classical eco nomic, life cycle, pecking order and agency theory perspectives are re viewed in order to formulate testable propositions concerning levels o f long-term, short-term and total debt, and liquidity. Up-to-date fina ncial data were collected from the U.K. Private+ database for a large sample comprising of both listed and unlisted small firms. Regression results indicate significant relationships between financial structure and profitability, asset structure, size, age and stock market flotat ion but not growth except when rapid and combined with lack of stock m arket flotation. Analysis of stock market flotation as an interactive dummy reveals major differences between listed and unlisted small firm s. The results indicate that the variety of financial structures obser ved in practice may reflect rational trade-offs of various costs on th e part of small firm owner-managers but that the over-reliance on inte rnally available funds and the importance of collateral, in the case o f unlisted small firms, are likely to be major constraints on economic growth.