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The capital constraint paradox in micro and small family and nonfamily firms

The capital constraint paradox in micro and small family and nonfamily firms Purpose– The purpose of this paper is to investigate the importance of the entrepreneur’s quest for independence and control over the firm for governance and financing strategies with a special focus on family firms and how they differ from nonfamily firms. Design/methodology/approach– The analysis is based on 1,000 telephone interviews with Swedish micro and small firms. The survey data are matched with firm-level data from the Bureau van Dijks database ORBIS. Findings– The analysis shows that independence is a prime motive for enterprises, statistically significantly more so for family owners. Family owners are more prone to use either their own savings or loans from family and are more reluctant to resort to external equity capital. Our results indicate a potential “capital constraint paradox”; there might be an abundance of external capital while firm growth is simultaneously constrained by a lack of internal funds. Research limitations/implications– The main limitation is that the study is based on cross-section data. Future studies could thus be based on longitudinal data. Practical implications– The authors argue that policy makers must recognize independence and control aversion as strong norms that guide entrepreneurial action and that micro- and small-firm growth would profit more from lower personal and corporate income taxes compared to policy schemes intended to increase the supply of external capital. Originality/value– The paper offers new insights regarding the value of independence and how it affects strategic decisions within the firm. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Enterpreneurship and Public Policy Emerald Publishing

The capital constraint paradox in micro and small family and nonfamily firms

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2045-2101
DOI
10.1108/JEPP-10-2015-0033
Publisher site
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Abstract

Purpose– The purpose of this paper is to investigate the importance of the entrepreneur’s quest for independence and control over the firm for governance and financing strategies with a special focus on family firms and how they differ from nonfamily firms. Design/methodology/approach– The analysis is based on 1,000 telephone interviews with Swedish micro and small firms. The survey data are matched with firm-level data from the Bureau van Dijks database ORBIS. Findings– The analysis shows that independence is a prime motive for enterprises, statistically significantly more so for family owners. Family owners are more prone to use either their own savings or loans from family and are more reluctant to resort to external equity capital. Our results indicate a potential “capital constraint paradox”; there might be an abundance of external capital while firm growth is simultaneously constrained by a lack of internal funds. Research limitations/implications– The main limitation is that the study is based on cross-section data. Future studies could thus be based on longitudinal data. Practical implications– The authors argue that policy makers must recognize independence and control aversion as strong norms that guide entrepreneurial action and that micro- and small-firm growth would profit more from lower personal and corporate income taxes compared to policy schemes intended to increase the supply of external capital. Originality/value– The paper offers new insights regarding the value of independence and how it affects strategic decisions within the firm.

Journal

Journal of Enterpreneurship and Public Policy – Emerald Publishing

Published: Apr 11, 2016

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