An Empirical Investigation of the Growth Cycle Theory of Small Firm Financing

Abstract

This paper empirically tests the financial growth cycle model for small and medium‐sized enterprises (SMEs), which postulates that as firms become larger, older, and more informationally transparent, their financing options become more attractive. We add to the literature by providing one of the first empirical tests of the model using a large, cross‐sectional data set. Our results partially support the financial growth cycle model. Specifically, our results show larger firms, as measured by total number of employees, are more likely to use public equity funding or long‐term debt as opposed to insider funding.

Additional information

Notes on contributors

Brian T. Gregory

Dr. Gregory received his Ph.D. from Auburn University and is currently assistant professor at the University of Southern Mississippi. His research interests lie in the areas of organizational culture, entrepreneurship, and organizational learning

Matthew W. Rutherford

Dr. Rutherford received his Ph.D. from Auburn University and is currently assistant professor of management at Gonzaga University. His research interests lie in the area of small firm strategy and growth.

Sharon Oswald

Dr. Oswald received her Ph.D. from the University of Alabama and is currently department head of management and holds the Colonel George Phillips Privett Professorship in Business at Auburn University. Her research interests are in the areas of strategic and family business management, project management, and international health-care administration.

Lorraine Gardiner

Dr. Gardiner received her Ph.D. from the University of Georgia and is currently professor of management information systems at California State University, Chico. Her research interests lie in the areas of multiple-criteria decision-making, project management, and quantitative methods.