Financial Differences between Large and Small Firms

Abstract

* Small businesses are important in the American economy, if not in dollar size, certainly in numbers and in the services they perform. This paper contrasts the of small businesses and large corporations. The key contrast is between publiclyheld corporations that are young and developing and those with a substantial history. In essence, the research question is: Does the financial management of the small publicly-owned business result in distinctively different financial characteristics from those of its larger publicly-owned counterpart? Quite frequently, managers of small businesses maintain that the financial management of their firms is fundamentally different from the management of the large corporation, because many large company financial practices simply are not necessary for the small publicly-held organization. Also, the financial management of the small business often may be dictated by the restricted choices available to it, such as fewer options for investing excess liquidity. While both contentions are understandable, little evidence is available that these general disparities exist. If financial management of large and small firms is different, dissimilarities should be evident in the financial profiles of large and small companies. These distinctions should be identified in order to assist management and academicians to see more clearly the implications of various financial concepts for the smaller company.