Abstract
This study examines how behavioral factors of business owners impact on the intention to use private finance in small and medium enterprises (SMEs). The study adopts the theory of planned behavior to investigate the effect of attitudes, subjective norms and perceived behavioral control on the choice and use of retained earnings and private equity by SMEs. The research samples are firms across 29 countries from Eastern Europe and Central Asia. The study uses partial least square structural equation modeling for the analysis. It was found that attitudes, subjective norms and perceived behavioral control of owners of SMEs’ impact on their intention to use private finance at a statistically significant level of 1 percent. These findings are discussed and the implications and suggestions for future study are proposed in this paper.
1. Introduction
Accessing loans from banks is one of the main options for the operation of small and medium enterprises (SMEs). However, because of the limitations associated with firm size, banks may require collateral as a guarantee before providing finance. Further, the possible inability to meet interest payments can result in bankruptcy for small firms. It has been observed that difficulty in obtaining collateral is more prevalent for newer and smaller firms (Bester, 1985). Additionally, small businesses seeking finance may be confronted with the problem of an equity gap. (De Maeseneire and Claeys, 2012). SMEs who are not listed companies and those who do not publicly trade on the stock market may find it difficult to access equity finance, but stock market flotation is more expensive for smaller companies (Lee et al., 1996). It has also been shown that when small companies first go public, they are often severely underpriced (Buckland and Davis, 1990). Without financial support, many SMEs may not be able to make investments, continue their operations, or even set up a business.
6. Implications and conclusion
This study examines whether behavioral factors of attitude, subjective norms and perceived behavioral control affect the intention to adopt private finance by SMEs It was found that SMEs’ owners’ beliefs about financial decisions and their experiences of trying to access finance influence owners as to whether or not they choose to use internal funds to run their businesses. Their beliefs and emotions affect their opinions about issuing private equity and distributing it to private investors.
