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Title:Regional financial system and the financial structure of small firms PDF Logo
Authors:Mahagaonkar, Prashanth
Chaudhuri, Swayan
Issue Date:2009
Series/Report no.:Jena economic research papers 2009,011
Abstract:The capital structure of firms is known to be different not only due to firm characteristics but also to the sources of capital. Therefore, there is a need to understand the supply side effects on a firm´s capital structure. A small firm´s choice of financing sources may be limited by the supply-side financial endowment of the region. Small firms are known to be heavily reliant on internal finance and the quantity and price channels are expected to drive usage of debt. Our findings on 2000 small firms in Eng land show that the quantity and price channels might work only for supply of very local capitals. Firms tend to prefer internal finance when semi-local or national institutions show higher commercial operational distance in their region. These results point out that semi-local and national institutions tend to drive away usage of debt due to monitoring costs or credit rationing, while very local institutions increase the usage of debt through quantity or price channels.
Subjects:Capital structure
regional financial system
information asymmetries
geography
JEL:G24
G32
E5
N2
O18
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

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