Understanding the Small Enterprise Financial Objective Function

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

Entrepreneurship Theory and Practice, 1995, vol. 19, issue 4, 21-39

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.

Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:sae:entthe:v:19:y:1995:i:4:p:21-39

DOI: 10.1177/104225879501900403

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