Financing of Entrepreneurial Firms in Canada: Some Patterns

Anton Miglo

doi:10.3390/admsci10030050

Abstract

This article analyzes the patterns of financing for entrepreneurial firms in Canada. We compare the predictions of major theories of entrepreneurial finance and some more recent ideas (e.g., crowdfunding-related ideas/theories) with empirical evidence. Regression and correlation analyses were used to analyze the connections between firms’ financing choices (e.g., debt/equity ratio) and different variables such as firm age, firm owner origin, and the fraction of intangibles assets. We found strong evidence that the financing choices of entrepreneurial firms in Canada are consistent with flexibility theory and credit rationing theory. We did not find evidence that taxes play a significant role in explaining these choices. We also found that the likelihood of using crowdfunding is consistent with local bias ideas and internet access. We also provide an overview of literature related to entrepreneurial financing in Canada and discuss its major challenges and directions for future research.

Highlights

In this article, we analyze the patterns of financing for entrepreneurial firms in Canada.Financing is an important and puzzling topic for large corporations as well as for entrepreneurial firms (Jõeveer 2013)
We compared the predictions of the major theories of entrepreneurial finance with empirical evidence
For example, that the flexibility theory and the credit rationing theory are consistent with many patterns of financing of small- and medium-sized enterprises (SMEs) in Canada

Summary

Introduction

We analyze the patterns of financing for entrepreneurial firms in Canada.Financing is an important and puzzling topic for large corporations (see, for example, a survey of managers by Graham and Harvey in 2001) as well as for entrepreneurial firms (Jõeveer 2013). Several theories that explain the ideas of firm capital structure and financing choice exist, including the flexibility theory of financing innovations, asymmetric information, credit rationing and the life cycle theory (for a review, see, for example, Harris and Raviv 1991; Klein et al 2002; Miglo 2011). Most of these theories do not have unanimous empirical support The topic of financing for entrepreneurial firms remains interesting and important

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