Debt Financing and Factors Internal to the Business

Abstract

DR. BERNICE KOTEY IS A LECTURER IN Accounting and Small Business at the Sunshine Coast Universitv College, Queensland, Australia. The capital strtucture of small businesses indicates an over-reliance on personal eqtuity anid short-term debts as major souirces of finance. Inadequate equity and long-term debt in the capital struicture is a primary cause of under-capitalisation in small btusinesses. This finance gap is frequently attributed to supply side fiactors stuch as inaccessibility to the stock imarkets and unwillingness of financial institutions to lend to small businesses. Howevet, failure to use long-term funds, particularly debt, could also be associated with demand side factors. Relationships between demand side factors such as personal values and financial planning propensities of owner-managers, and use of debt finance are examined empirically in this study. The findings indicate an association between financial leverage lex els of firms and personal values of theirowiner-managers. The study also demonstrates that owner-managers who uise (lebt and engage in finan-cial planning achieve higlhei pertot I-nManC(e levels thanthose wvlho do -iot engage iti such activities. Owner-managei-s 5rl-> h) avoid uise of debt finance Wel-e ftomidt1(1 rate loW on trust of others.