Risk and Financing Cost of Small Firms
22 Pages Posted: 6 Mar 2014
Date Written: November 12, 2001
Abstract
Based on a sample of 71,000 balance sheets of Austrian firms during 1989-1996 we can show that higher financing costs of small firms are a consequence of higher risk and larger debt burden of small firms in comparison with large firms. In the empirical analysis we partitioned the data in groups by firm size and used group summary statistics as observations in the ensuing regression analysis. Based on concepts from the strategic management literature, we applied a variation based risk measure. The results are similar across 13 industries and caution against seeing firm size as a direct factor explaining higher financing cost of small firms.
Keywords: risk, cash flow, financing cost, size effects
JEL Classification: C21, G32, L11
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