Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114644
Authors: 
Schnabel, Jacques A.
Year of Publication: 
1992
Citation: 
[Journal:] Journal of Small Business Finance [ISSN:] 1057-2287 [Volume:] 2 [Year:] 1992 [Issue:] 1 [Pages:] 13-21
Abstract: 
A simple single-period model of entrepreneurial capital structure choice under conditions of informational asymmetry is developed. The uncertain terminal cash flow generated by a business venture is assumed to depend on both the amount of effort provided by the entrepreneur and the quality of the business venture. External financing induces the effort-averse entrepreneur to reduce the amount of effort he exerts. However, by astute choice of capital structure, the entrepreneur can mitigate this effect. It is shown that this entails financing high quality ventures with debt and low quality ventures with equity. This explains the predominance of debt in the capital structures of small firms.
Subjects: 
Capital Structure
Capital
Small Business
Small Firm
JEL: 
L25
G32
M13
Document Type: 
Article

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