Availability of Credit to Small Firms Young and Old: Evidence from the Surveys of Small Business Finances
The availability of credit is one of the most important issues facing small businesses, and is especially vexing for young and fast-growing firms that need new capital to finance growth. In the United States, small businesses produce about half of the total GDP in the U.S., employ about half of all private-sector U.S. workers, and have accounted for almost two-thirds of all job growth between 1993 and 2008. Therefore, it is critically important to understand the issue of credit availability to small firms. This article analyzes data from a series of four nationally representative samples of small U.S. firms conducted by the Federal Reserve Board over two decades. It explores differences in younger and older firms, using ten years as the demarcation point between young and old businesses. Younger firms seeking to grow have different credit needs than older, more mature firms. Many distinguish entrepreneurial firms from other small firms by their age. The article briefly describes the Surveys for Small Business Finances (SSBFs); summarizes two sets of studies that use the SSBFs to analyze the use of credit by small firms; and presents new evidence from the SSBFs on differences between young and old small firms, with a focus on the availability of credit.
The role of banks in real economic activity has been discussed at length, with arguments over whether bank development is merely a consequence of a growing economy, which simply demands a growing flow of intermediated funds, or whether instead banks themselves can spur further real economic activity. Both theory and empirical advances in recent years have put this causality debate to rest. Not only does banking matter but we now know better how. This chapter provides a panoramic view of the literature on this topic, from the earlier emphasis on causality, to its further investigation of the specific mechanisms through which banks affect the real economy and open issues on the table to carry research activity going forward.
Christian Andres, Andre Betzer, and Jasmin Gider
This article discusses global buyouts. It tries to explain the international differences in buyout markets across countries, but is not concerned with the performance and investment strategies on the fund level. The first section takes a look at the buyout activity of different countries, and then it forms a relationship between buyouts, the institutional environment, and the quality of corporate governance. The following section reviews the present empirical evidence of buyout strategies that are pursued in various geographical regions. Finally, this article tries to relate the findings to the institutional environments.
This article studies a sample of 265 buyouts that were conducted from 1997 until 2004. These buyouts involved companies in the United Kingdom, Italy, France, Belgium, Spain, Germany, and the Netherlands. It explores the extent to which buyouts affect the performance of target companies for a three-year period around the deal date. It then assesses whether such operations encourage or limit the innovation activity of acquired firms. Finally, this article discusses the effects of private equity investments on firm growth. An assessment of the total innovative effort of the sample firms is also included.
Hans Degryse, Adiana Paola Morales Acevedo, and Steven Ongena
This chapter combines recent findings from the empirical banking literature with established insights from studies of banking competition and regulation. It starts with a concise overview and assessment of the different methodological approaches taken to address banking competition. While market structure indicators are readily available, they may not be overly informative about the competitive conditions in banking markets. The literature has focused to date on “non-market structure” indicators such as the Panzar-Rosse H-statistic, the Lerner index, and the Boone indicator. The chapter then structures a discussion on the empirical findings based upon a framework that finds its roots in the different theories of financial intermediation. Many other specific approaches to infer banking competition are discussed, in particular, the impact that regulation and information-sharing between banks may have on banking competition.
Cécile Carpentier, Jean-François L'Her, and Jean-Marc Suret
This article discusses the way small Canadian listed firms discriminate between competing selling devices to lessen their issuance costs. It studies the choice between private placements (PPs) and public seasoned equity offerings (SEOs) for entrepreneurial firms that can decide between these two types of financing. It also examines the institutional setting in the Canadian context and notes its differences from the one that is described in most private investment in public equity (PIPE) studies. One section identifies the two primary constituents of the costs of private and public equity issues and the factors that potentially influence them. This article also provides data and descriptive statistics that are related to Canadian equity issuers.
Kasper Meisner Nielsen
This article discusses the intermediation model and focuses on direct investments by institutional investors. It also introduces “indirect investments,” which refer to investments that are made through funds of funds. The first section presents some evidence of direct investments in private firms from various countries around the world. It then discusses the relevant issues that surround direct investments. This article determines that there are implications for the governance and success connected to the use of different private equity structures.
This article addresses the question of whether the private equity fund-of-funds managers provide value or not. It studies the value added by funds of funds, and suggests that fund-of-funds managers do not appear to perform better on a risk-adjusted basis than their peers. This article also tries to determine if these managers provide the private equity investor with value. It also considers if the institutional investors should invest in getting the necessary connection that would help them directly access private equity investments.
Brent Goldfarb, David Kirsch, and April Shen
How are new industries financed? Specifically, for industries pioneered by entrepreneurial firms, where do entrepreneurs acquire the initial resources to start and grow their firms? This article reviews the literature on the role of finance in the emergence of new industries. It begins with a brief review of the central problems of finance of the high-risk, high-growth ventures that often play an important role during the emergence of new industries. It then presents several mini-case studies on new industries. It explores the ways that public markets and, more recently, venture capital limited partnerships have altered the industry emergence process, and thereby evaluates the literature's view of the role of these institutional arrangements.
Douglas Cumming and Na Dai
This article discusses fund size, limited attention, and the valuation of venture capital- and private equity-backed firms. It determines that decreasing performance and distorted valuations are associated with larger private equity funds, and determine that these effects are due to the limited attention of fund managers. Some of the concepts discussed in this article include ordinary least squares (OLS) regressions and portfolio companies. It also shows that the most reputable private equities pay a lower price for portfolio companies of similar quality and that fund size and valuations of portfolio companies have a convex relationship. A relevant positive association between limited attention and valuation is also noted. This article concludes that fund size is generally positively associated with the negotiation power of private equity.