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2011/1 (Vol. 32)

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Very small businesses (VSB) experience financing constraints unlike those encountered by larger companies; however, they are rarely studied. Their unique characteristics, including the important information asymmetry they suffer and the predominant role of their shareholder-manager, may be well suited to a pecking order theory framework as a means to analyze their capital structure decisions. Specifically, VSB financing choices appear to follow a hierarchical order, such that they prefer internal to external financing and debt to stock issuance. Using a sample of 393,662 firm-year observations from 56,605 individual French VSB, this study shows that the pecking order theory can explain most of their financing decisions. In addition, a change in debt relates asymmetrically to financing deficit. Firms with a positive deficit rely almost entirely on debt for financing, whereas firms with a negative deficit (excess of financing) behave more conservatively and are less likely to repay their debts spontaneously in advance.


  1. Introduction
  2. Literature review and hypotheses
    1. Theoretical justification for adopting the pecking order theory framework
    2. Research hypotheses
  3. Data and methods
    1. Sample description
    2. Methods, specifications, and variable description
  4. Empirical evidence
    1. Main results
    2. Additional results and robustness checks
  5. Conclusion

To cite this article

Nihat Aktas, Ingrid Bellettre, Jean-Gabriel Cousin, “ Capital Structure Decisions of French Very Small Businesses ”, Finance 1/2011 (Vol. 32) , p. 43-73
URL : www.cairn.info/revue-finance-2011-1-page-43.htm.

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