Growth history, knowledge intensity and capital structure in small firms

Stewart Thornhill, Guy Gellatly and Allan Riding

Venture Capital, 2003, vol. 6, issue 1, 73-89

Abstract: This paper explores the financial characteristics of successful Canadian small- and medium-sized enterprises (SME). It asks whether industry membership and early growth history play a role in shaping these financial characteristics. Our study reveals a strong correlation between capital structure and knowledge intensity. In contrast, growth histories are not obvious determinants of financial structure. Results also suggest that leverage strategies are more apparent in low-knowledge industries, in firms with higher expectations of future performance, and in businesses with more balanced financial structures. Industry comparisons are based on production activity and knowledge intensity. Growth distinctions are based on the firm's employment and sales history. We evaluate our hypotheses with survey data from a stratified random sample of 2775 Canadian firms. Proportional weighting techniques are utilized in all analyses.

Date: 2003
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DOI: 10.1080/1369106042000175591

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