Ciaran Mac an Bhaird

An empirical investigation of the financial growth life cycle

The key contribution of this paper is an empirical examination of the financial growth life cycle model by combining a number of statistical tests. This approach is significantly different to that traditionally adopted in empirical investigations of SME financing, which is to examine the applicability of theories developed in corporate finance on panel data. Additionally, it presents data on personal sources of finance employed by firm owners, which is typically not available, even in comprehensive secondary databases.

The Irish economy: Three strikes and you're out?

We examine the three interlinked Irish crises: the competitiveness, fiscal and banking crises, showing how all three combined to lay a lethal trap for Ireland. Starting from a point of economic balance, a series of poor government decisions led to the country once dubbed the Celtic tiger become the second eurozone state after Greece to seek a bailout, with the EFSF/IMF intervening in late 2010.

Demand for Debt and Equity Before and After the Financial Crisis

Supply and demand responses to financial crises result in fluctuations in credit flow to the private sector. Policy makers concerned with the sustainability and growth of viable firms should disaggregate these responses. Utilizing firm level data, this study investigates characteristics of firms applying for external finance before and after the financial crisis, along with characteristics of successful applicants. Notwithstanding changes in credit conditions, salient features of external financing demand endure across the period, including ownership, asset structure, age and size. Failure to secure debt in an earlier period does not deter firm owners from applying for loans in a subsequent period. Evidence suggests that the most financially distressed firms are suffering the greatest consequences of the credit crunch.

Determinants of the Capital Structure of SMEs: A Seemingly Unrelated Regression Approach

This paper presents an empirical examination of firm characteristic determinants of the capital structure of a sample of 299 Irish small and medium sized firms (SMEs hereafter). Hypotheses are formulated from pecking order and agency theories incorporating a financial growth life cycle approach, and are tested on a number of multivariate regression models. The results suggest that age, size, level of intangible activity, ownership structure and the provision of collateral are important determinants of the capital structure in SMEs. A generalisation of Zellners (1962) Seemingly Unrelated Regression approach (SUR hereafter) is used to examine industry effects and to test the stability of parameter estimates across sectors. Results suggest that the influence of age, size, ownership structure and provision of collateral is constant across industry sectors, indicating the universal effect of information asymmetries. Surmounting these information asymmetries is influenced by differences in asset structure across sectors, resulting in diverse sectoral financing choices.

Seeding the cloud: financial bootstrapping in the computer software sector

This study investigates resourcing of computer software companies that have adopted cloud computing for the development and delivery of application software. Use of this innovative technology potentially impacts firm financing because the initial infrastructure investment requirement is much lower than for packaged software, lead time to market is shorter and cloud computing supports instant scalability. We test these predictions by conducting in-depth interviews with founders of 18 independently owned nascent enterprises, of which three-quarters have adopted cloud computing. We identify particular bootstrapping methods used by start-ups in the computer software sector. Cloud computing enables firms to develop and launch products with minimal resources, reducing barriers to entry, with consequent increased competition. The primary business bootstrapping technique is foregoing wages, supplemented by small amounts of grant funding. Customers are a source of knowledge and expertise for product development, which occurs in an iterative process. Product bootstrapping techniques have changed in response to technological innovation, although methods to acquire tangible assets are identical over time. Astutely applied, financial bootstrapping is a resource management strategy essential to the growth and survival of high-technology firms.

What Determines the Decision to Apply for Credit? Evidence for Eurozone SMEs

This study examines the decision by firm owners to apply, or not, for intermediated debt. Based on a sample of SMEs in 9 European countries over the period 2009-2012, we examine firm characteristics, institutional and cultural factors. We focus our analyses on two distinct groups of firms, those that applied for debt and firms that did not apply for fear of rejection. We find evidence that firm age, size and existing debt capacity matter, as do bank and liquidity conditions. We provide evidence for the first time that national culture correlates to the decisions to apply or not for credit. Policy implications of these findings are discussed, with an emphasis on the current ongoing economic crisis.

Discouraged borrowers: Evidence for Eurozone SMEs.

This study examines the decision by firm owners not to apply for intermediated debt due to a perception that their application will be rejected for a sample of small firms in 9 European countries - these are “discouraged” borrowers. Compared with firms that applied for bank loans, discouraged borrowers are smaller, younger, have declining turnover and an increasing debt to assets ratio. Transmission of macro effects through the banking system and the economic environment also leads to higher levels of discouragement. Higher regulatory quality results in greater borrower discouragement, indicating the importance of regulation and enforcement mechanisms for the efficient functioning of private debt markets.

Habitus emerging: the development of hybrid logics and collaborative business models in the Irish craft beer sector

This article analyses data from 25 Irish craft beer entrepreneurs supplemented by associated web and press material, to explore how habitus emerges in a nascent entrepreneurial field. Welter’s frame of entrepreneurial contexts – business, social, spatial and institutional – is combined with Bourdieusian theory to explain the emergence of habitus. Findings show that emerging habitus is enacted through hybridisation of diverse global and local field logics, via the adoption, development and extension of their logics. It is also path-dependent on the life and career histories of a critical mass of habitus members, previously exposed to these fields. The study shows both local and global strategies of collective resource sharing – a novel approach to tackling the resource paucity typically faced by partitioned specialists facing large-scale generalists.

Can Credit Unions Bridge the Gap in Lending to SMEs

Small firms continue to experience difficulty accessing adequate finance from formal external sources, notwithstanding many and varied institutional and policy initiatives introduced to address this seemingly perennial problem. Underpinning research indicates that information asymmetry is the principal reason for the finance gap, particularly for young firms. The aim of legislation introduced in the UK in 2012 is to utilise the credit union sector to increase the amount of new lending to SMEs. The rationale for this legislative change arises because credit unions typically operate within a defined geographic region wherefrom they can compile detailed local knowledge of small businesses and be therefore uniquely placed to minimise information asymmetries thereby reducing the funding gap for small firms. Despite this perceived advantage, credit unions have been reluctant to take advantage of this legislative, and therefore lending by credit unions to SMEs has been negligent to date. We investigate the reasons for this lack of engagement in SME lending by interviewing the chief executives of five credit unions in Scotland. Our findings reveal that the CEOs of the credit unions are reluctant to lend to SMEs at present as they are uncomfortable with the level of risk associated with lending to a sector of which they have little experience or expertise. Furthermore, credit unions will need to offer attractive interest rates to compete with high street banks and an increasing number of microcredit providers. Policy makers need to better understand the structure and function of credit unions before assigning a greater role in SME lending. It is too early to say whether credit unions can play a significant role in SME lending, and our evidence suggests that structural issues must first be resolved before they become an established presence in the SME lending ecosystem.

Culture and Capital Structure in Small and Medium Sized Firms

Employing 90,000 firm-level observations from 13 countries over a seven year period, and controlling for an extensive set of firm-level characteristics, industry effects and country-level institutional variables, we provide a conceptual framework and empirical analysis of how culture influences capital structure in SMEs. We document hitherto unreported effects. Uncertainty avoidance and individuality are negatively related with long-term debt, highlighting SME owners desire to avoid heightened business risk, reduce interference from debt providers, and maintain autonomy and independence. Negative relationships between power distance and debt suggest a more consultative role with financial institutions, facilitating greater access to debt. Policy makers should take account of the deep and powerful consequences of cultural influences when designing and implementing SME financing initiatives.