Formal and informal financing decisions of small businesses

The Capital Budgeting Decisions of Small Businesses

Formal and informal financing in a Chicago ethnic neighborhood

The Community Reinvestment Act (CRA), the Equal Credit Opportunity Act, and the Fair Housing Act all assign a key role to the formal banking sector, based on the view that it is vital for poor and ethnic minority sections of society to have access to banks and other mainstream financial institutions. The usual regulatory view rarely considers alternatives to the formal banking sector, contribut...

Entrepreneurial Optimism, Credit Availability, and Cost of Financing: Evidence from U.S. Small Businesses

Does entrepreneurial optimism affect the credit availability to small firms and their cost of financing? Using a large sample of U.S. small businesses and a new measure of optimism, we find that higher levels of optimism result in significantly higher leverage. In addition, we find that firms with optimistic entrepreneurs tend to use more short-term debt. We do not find evidence that banks curt...

Overvalued Equity and Financing Decisions

We test whether equity overvaluation affects corporate financing decisions using an ex ante misvaluation measure that filters firm scale and growth prospects from market price. We find that equity issuance and total financing by firms increase with equity overvaluation; but only among overvalued stocks. Also consistent with behavioral theories, we find that the sensitivity of equity issuance to...

Virtual Communities of Practice for Regional Small Businesses: Bringing Informal Networks Online

Virtual communities of practice (VCoPs) are online business networks which are increasingly used by large organisations as a key strategy for creating value in the knowledge-based economy of the 21 st Century. This paper examines the applicability of VCoPs to cross-industry regionally clustered small business networks. Interviews conducted with government and industry informants in two regional...