Determinants from the Practice of Small Business Finance

Abstract

Because of its nature, the practical literature is much less easy to inventory than the theoretical literature is. In the latter, determinants are derived in a well defined framework of assumptions, objectives and instruments, aimed at reducing phenomena to their absolute essentials. The result is a number of neatly arranged categories of determinants. The practical literature, however, lacks the guidance of such a strict framework and the result is a myriad of different aspects of the firm’s financial behaviour. The subjects addressed in this literature vary from the start of a small business to the prediction of corporate bankruptcy and the methods used to tackle these problems include empirical facts, rules of thumb, practical guidelines and research outcomes as simple correlations and the results of multivariate techniques. The practical literature also covers a wider area and includes not only all debt and equity categories but also the different types of assets. The fragmented nature of this literature will almost inevitably be reflected in the discussion below, but fortunately, some useful recapitulations of the practical literature have been published which help to map this vast area. In particular, the studies by Sprenger et al. (1982), Van der Linden et al. (1988) and by Walker and Petty (1978a) are used to draw up the summary in the following subsections.