Capital structure decisions of French very small business

Nihat Aktas, Ingrid Bellettre () and Jean-Gabriel Cousin ()
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Nihat Aktas: EM - EMLyon Business School
Ingrid Bellettre: Université Lille Nord (France)
Jean-Gabriel Cousin: Université de Lille, Université Lille Nord (France)

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Abstract: Very small businesses (VSB) experience financing constraints unlike those encountered by larger companies; however, they are rarely studied. Their unique characteristics, including the important information asymmetry they suffer and the predominant role of their shareholder-manager, may be well suited to a pecking order theory framework as a means to analyze their capital structure decisions. Specifically, VSB financing choices appear to follow a hierarchical order, such that they prefer internal to external financing and debt to stock issuance. Using a sample of 393,662 firm-year observations from 56,605 individual French VSB, this study shows that the pecking order theory can explain most of their financing decisions. In addition, a change in debt relates asymmetrically to financing deficit. Firms with a positive deficit rely almost entirely on debt for financing, whereas firms with a negative deficit (excess of financing) behave more conservatively and are less likely to repay their debts spontaneously in advance.

Date: 2011-01-01
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Published in Finance, 2011, 32 (1), 43-73 p. ⟨10.3917/fina.321.0043⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312638

DOI: 10.3917/fina.321.0043

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