In this paper I review the literature in search of the factors that influence financing decisions in SMEs. Financial theories suggest that the only goal of a company is value maximization, but empirical studies have shown that small companies’ owners can have other goals than profit maximization, this being reflected in their financing decisions. Also the personal characteristics of SMEs’ founders are relevant in establishing the companies financing strategydecisions, financing, medium sized firms, profit maximization, small sized firms.

Flavia-Diana NISTOR

English

Research Papers in Economics

Proceedings of the 10
th International Conference INVESTMENTS AND ECONOMIC RECOVERY,  
26 – 28 May, 2011, Bucharest, ROMANIA 
 
 
 
 
   
WHICH ARE THE FACTORS INFLUENCING  
FINANCING DECISIONS IN SMEs? 
 
Flavia-Diana NISTOR 
Commercial Academy Satu Mare, Romania,  
E-mail: flavia_chiorean@yahoo.com 
 
 
ABSTRACT 
 In  this  paper  I  review  the  literature  in  search  of  the  factors  that  influence  financing 
decisions in SMEs. Financial theories suggest that the only goal of a company is value 
maximization, but empirical studies have shown that small companies’ owners can have 
other goals than profit maximization, this being reflected in their financing decisions. Also 
the personal characteristics of SMEs’ founders are relevant in establishing the companies 
financing strategy. 
 
KEYWORDS: decisions, financing, medium sized firms, profit maximization, small sized 
firms. 
 
JEL CLASSIFICATION: D92, G32, M21. 
 
REFERENCES 
 
Baas,  T.,  &  Schrooten,  M.  (2006).  “Relationship  Banking  and  SME’s:  A  Theoretical 
Analysis”. Small Business Economics, 27, 127-137. 
Barton, S. L., & Gordon, P.  J. (1988). “Corporate Strategy and Capital Structure”. Strategic 
Management Journal, 9, 623-632. 
Barton, S. L., & Matthews, C. H. (1989). “Small Firm Financing: Implications from a Strategic 
Management Perspective”, Journal of Small Business Management, 27(1), 1-7. 
 
Berger,  A.  N.,  &  Frame,  W.  S.  (2007),  “Small  Business  Credit  Scoring  and  Credit 
Availability”, Journal of Small Business Management, 45(1), 5-22. 
Berger, A. N., & Udell, G. (1995). „Relationship Lending and Lines of Credit in Small 
Firm Finance”. Journal of Business, 68(3), 351-381. 
Chaganti, R., Decarolis, D., & Deeds, D. (1995). “Predictors of Capital Structure in Small 
Ventures”. Entrepreneurship: Theory and Practice, 20(3), 51-65. 
Chen, H., Gompers, P., Kovner, A., & Lerner, J. (2009). Buy Local? The Geography of 
Successful  and  Unsuccessful  Venture  Capital  Expansion.  retrieved  from: 
http://www.economics.harvard.edu/faculty/glaeser/files/Urban 
%20Economics.pdf.  
Constantinidis,  C.,  Cornet,  A.,  &  Asandei,  S.  (2006).  “Financing  of  Women-Owned 
Ventures: The Impact of Gender and Other Owner and Firm-Related Variables”. 
Venture Capital-An international Journal of Entrepreneurial Finance, 8, 133–157. 
Cressy, R. (2002). “Funding Gaps: A Symposium”. The Economic Journal, 112, F1-F16. 
DeAngelo, H., & Masulis, R. (1980). “Optimal Capital Structure under Corporation and 
Personal Taxation”, Journal of Financial Economics, 9, 3-30. 
De Meza, D. (2002). “Overlending?”, Economic Journal, 112, F17. Proceedings of the 10
th International Conference INVESTMENTS AND ECONOMIC RECOVERY,  
26 – 28 May, 2011, Bucharest, ROMANIA 
 
 
Hutchinson, R. W. (1995). “The Capital Structure and Investment Decisions of the Small 
Owner-Managed Firm: Some Exploratory Issues”. Small Business Economics, 7, 
231–239. 
Kaplan, S., & Schoar, A. (2005). “Private Equity Performance: Returns, Persistence, and 
Capital Flows”. Journal of Finance, LX, 1791–1823. 
Kaplan, S., Sensoy, B., & Strömberg, P. (2009). “Should Investors Bet on the Jockey or the 
Horse? Evidence from the Evolution of Firms from Early Business Plans to Public 
Companies”, The Journal of Finance, LXIV, 75-115. 
Mason, C. M., & Harrison, R. T. (2004). “Improving Access to Early Stage Venture Capital 
in  Regional  Economies:  A  New  Approach  to  Investment  Readiness”,  Local 
Economy, 19, 159-173. 
Modigliani, F., & Miller, M. H. (1958). “The Cost of Capital, Corporation Finance, and the 
Theory of Investment”, American Economic Review, 48, 261-929. 
Myers, S., & Majluf, N. (1984). “Corporation Financing and Investment Decisions When 
Firms  Have  Information  that  Investors  Do  Not  Have”,  Journal  of  Financial 
Economics, 13, 187-221. 
Orser, B. J., Riding, A. L., & Manley, K. (2006). “Women Entrepreneurs and Financial 
Capital”. Entrepreneurship Theory and Practice, 30, 643–665. 
Romano,  C.  A.,  Tanewski,  G.  A.,  &  Smyrnios,  K.  X.  (2001).  “Capital  Structure  Decision 
Making a Model for Family Business”, Journal of Business Venturing, 16, 285–310. 
Shane,  S.,  &  Cable,  D.  (2002).  “Network  Ties,  Reputation,  and  the  Financing  of  New 
Ventures”., Management Science,  48, 364. 
Stiglitz, J., & Weiss A. (1981). “Credit Rationing in Markets with Incomplete Information”. 
American Economic Review, 71, 393-409. 
Van Auken, H. E., & Neeley, L. (1996). “Evidence of Bootstrap Financing Among Small 
Start-Up  Firms”,  Journal  of  Entrepreneurial  &  Small  Business  Finance,  5(3),  
233-248. 

Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion. retrieved from: http://www.economics.harvard.edu/faculty/glaeser/files/Urban %20Economics.pdf.

Capital Structure Decision Making a Model for Family Business”,

Corporate Strategy and Capital Structure”.

Corporation Financing and Investment Decisions When Firms Have Information that Investors Do Not Have”,

Credit Rationing in Markets with Incomplete Information”.

Evidence of Bootstrap Financing Among Small Start-Up Firms”,

Financing of Women-Owned Ventures: The Impact of Gender and Other Owner and Firm-Related Variables”. Venture Capital-An international

Funding Gaps: A Symposium”.

Improving Access to Early Stage Venture Capital in Regional Economies: A New Approach to Investment Readiness”,

Network Ties, Reputation, and the Financing of New Ventures”.,

Optimal Capital Structure under Corporation and Personal Taxation”,

Private Equity Performance: Returns, Persistence, and Capital Flows”.

Relationship Banking and SME’s: A Theoretical Analysis”.

Relationship Lending and Lines of Credit in Small Firm Finance”.

Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Business Plans to Public Companies”,

Small Business Credit Scoring and Credit Availability”,

Small Firm Financing: Implications from a Strategic Management Perspective”,

The Capital Structure and Investment Decisions of the Small Owner-Managed Firm: Some Exploratory Issues”.

WHICH ARE THE FACTORS INFLUENCING FINANCING DECISIONS IN SMEs?

WHICH ARE THE FACTORS INFLUENCING FINANCING DECISIONS IN SMEs?

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics