Teresa Hogan

Bank credit and trade credit: Evidence from SMEs over the financial crisis

This article uses panel data to test the extent to which trade credit acted as a substitute for bank finance in Small and Medium-sized Enterprises (SMEs), in the aftermath of the financial crisis of 2008. It demonstrates that the reduction in the supply of funds to SMEs was compounded by the contraction of net trade credit within the sector. Nevertheless, trade credit played a vital role in the adjustment of the sector by easing the burden of the financial crisis for some SMEs. Thus, the relative importance of trade credit increased for financially “vulnerable” SMEs that were less liquid, highly dependent on short-term bank finance, and with greater levels of intangible assets, when entering the crisis. In terms of a redistribution effect, financially stronger firms extended relatively more trade credit, to financially vulnerable SMEs in the aftermath of the financial crisis. In addition, the analysis demonstrates that the financial position of SMEs entering the crisis was more important in determining the impact of the financial crisis on trade credit use than company characteristics of age and size. JEL Classification: L26, L14, G20, B41, C33

University research scientists as knowledge workers: contract status and employment opportunities

University research scientists epitomise knowledge workers who are positioned to avail of the employment conditions associated with ‘boundaryless careers’. Yet while employment flexibility has been hailed as a positive feature of knowledge work, relatively little is known about the forms such flexibility may take or its impact. This article considers the factors shaping the employment conditions of 40 research scientists working in five university research centres in Ireland. The findings suggest that, for knowledge workers such as research scientists, contract employment can deny them access to many of the employment conditions and opportunities that govern their long-term success as researchers.

Drivers of External Equity Funding in Small High‐Tech Ventures

Financing is one of the major issues affecting the success and survival of entrepreneurial ventures. Theory suggests that due to information asymmetry between owners and investors or lenders, there is a “pecking order” of financing preferences, whereby retained earnings is preferred to debt, and outside equity is seen as a last resort. In high‐tech ventures, however, outside equity financing is more commonly used than debt, but the reasons for this are not yet well‐understood. We develop hypotheses to examine this theory‐practice gap, which we test using a sample of private high‐tech firms of various ages. We find that the greater the owners perception of information asymmetries in debt markets, the larger the proportion of external equity in the firms capital structure. As our sample firms age, their use of external equity relative to other sources of finance diminishes. We also find a positive relationship between the use of external equity and the firms initial investment. Last, we show that the greater the perception amongst founders that obtaining external equity sends a positive signal, the greater its use. We discuss the implications of these findings and offer suggestion for future research and practice.

Defining Family Business: A Closer Look at Definitional Heterogeneity

Researchers have used a myriad of different definitions in seeking to explain the heterogeneity of family firms and their unique behavior; however, no widely accepted definition exists today. Definitional clarity in any field is essential to provide (1) the basis for the analysis of performance both spatially and temporally and (2) the foundation upon which theories, frameworks, and models are developed. We provide a comprehensive analysis of prior research and identify and classify 82 definitions of family business. We then review and evaluate five key theoretical perspectives in family business to identify how these have shaped and informed the definitions employed in the field and duly explain family firm heterogeneity. Finally, we provide a conceptual diagram to inform the choice of definition in different research settings.

Measuring the Returns to Investment in Innovation

We examine the effectiveness of government direct funding of firm innovation through R&D grants on firms future R&D investment, employment, and performance. Using a novel proprietary dataset of 1,825 R&D grants awarded to Irish domiciled firms for the period 2003-2012, we first show that grant ‘winners’ differ significantly from other firms in terms of several firm-level and industry characteristics, confirming that government sponsored grant awarding agencies ‘select’ winners using pre-determined characteristics. We find that grant winners experience a 19.8% higher R&D growth rate than ‘similar’ non-grant winners in the year after winning. The return per Euro invested is about 12 Euro relative to the average non-grant winning firm, but declines to 1.64 when benchmarked against ‘similar’ non-grant winners, suggesting grants help stimulate additional private investment. Grant winners who are not R&D active prior to winning also experience significantly greater increases in total and in-house R&D employment. Further, we report some evidence of improvements in firm ex-post financial performance, but this is conditional on grant winners investing in R&D. We use a propensity-scoring matching (PSM) system and ‘placebo’ tests to help alleviate sample selection and causality concerns.

Chapter 5 How Useful is the Stage Model Theory in Explaining the Capital Structure of Venture Capital-Backed and Non-Venture Capital-Backed Firms?

Policymakers have long supported the development of venture capital markets on the basis that venture capital fills a perceived gap in the availability of early stage seed capital funding for new technology-based firms (NTBFs).1 Support from policymakers, however, has not been matched by academic research on NTBF financing. This is a major concern because NTBF financing is not well understood. The theoretical focus of this chapter is the life cycle or stage model of financing, which has proved the dominate paradigm in the analysis of financing in NTBFs. It is particularly relevant to this study, as the stage model is explicitly endorsed by venture capitalists who structure deals in phases in order to effectively monitor the investee firms progress (Sahlman, 1990).

Chapter 11 The High-Technology Pecking Order in Spinoffs and Non-SpinoffsTeresa Hogan and Elaine HutsonThe High-Technology Pecking Order in Spinoffs and Non-Spinoffs in the Irish Software Sector

Despite their increasing importance in innovation, employment creation and economic growth, there is a dearth of theory-driven research on the financing and capital structure of new technology-based firms (NTBFs).1 Hogan and Hutson (2005a) advance the High-Technology Pecking Order Hypothesis (HTPOH) to explain the role of equity in the financing of NTBFs in the software product sector. The HTPOH posits that NTBFs exhibit a hierarchical pattern of financing that gives precedence to internal sources, but if external financing is required, equity is preferred to debt. This study investigates the extent to which the genesis of the NTBF affects its financing patterns?