Small and Medium Size Enterprise Financing: A Note on Some of the Empirical Implications of a Pecking Order

By R. Watson, N. Wilson. 2002

266 citations recorded by the source corpus.

Asymmetric information models predict a 'pecking order' which reflects a combination of owner-manager preferences and external capital supply constraints whenever insiders know more about the true value of the firm's prospects than outsiders. The pecking order results in retained earnings being the most preferred source of finance, then debt and finally the issue of new shares to outsiders. Using a sample of 629 UK SMEs over the five-year period from 1990 to 1995 we find evidence consistent with a pecking order in which retained equity is preferred over debt. As expected, the evidence of a pecking order was particularly strong in respect of the closely-held firms in our sample.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/698312c439f96a79b7b3a20f74cfc90be8ed29df

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Citations in the corpus

Trade Credit, Bank Credit, and Flight to Quality: Evidence from French SMEs (2015, background): “The pecking order theory is especially relevant for small and medium-sized firms (Ang 1991; Holmes and Kent 1991; Psillaki and Daskalakis 2009; Watson and Wilson 2002) as these firms do not typically aim at a target debt ratio and their financing decisions follow a hierarchy.”
The Determinants of Capital Structure: Evidence from the Turkish Manufacturing Sector (2014, background): “Various research studies have been conducted to test the pecking order theory (see, for example, Ihamuotila, 1997; Shyam-Sunder and Myers, 1999; Fama and French, 2000; Bevan and Danbolt, 2000; Ozkan, 2001; Zoppa and McMahon, 2002; Watson and Wilson, 2002; Fan and So, 2004; Ramlall, 2009; Jensen, 201”
Are the determinants of capital structure country or firm specific? (2009, unknown): “For example, Ang (1991), Holmes and Kent (1991), and Watson and Wilson (2002) , emphasized that the pecking order theory can be easily applied to SMEs.”
Determinants of the Capital Structures of European SMEs (2004, unknown): “The year involved (1995) was the same for all countries and corresponds to the period reported for several, complementary studies recently published in this journal (Jordan et al., 1998; Ozkan, 2001; and Watson and Wilson, 2002).”
Determinants of capital structure in Irish SMEs (2010, background): “An important qualification in this respect is the ownership structure of the firm, as the significant negative relationship between ownership and use of external equity indicates a greater desire for control among closely held firms (Poutziouris et al. 1998; Watson & Wilson 2002; Poutziouris 2003).”
A two-part fractional regression model for the financial leverage decisions of micro, small, medium and large firms (2009, background): “( 1999 ), Watson and Wilson ( 2002 ), Cassar and Holmes ( 2003 ), Hall et al .”
Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies (2005, background): “6 Watson and Wilson ( 2002 ) test trade-off against pecking order theories by distinguishing anticipated and unanticipated changes in firms’ debt ratios.”
On the Determinants of SME Cash Holdings: Evidence from Spain (2008, unknown): “This result is in line with the presence of a financial hierarchy as established by the Pecking Order Theory, which is particularly relevant for SMEs (Jordan et al., 1998; and Watson and Wilson, 2002 ).”
A conceptual framework for identifying financing preferences of SMEs (2015, background): “Empirical studies conducted exclusively on the determinants of the capital structure of SMEs show the dominance of pecking order theory (Beck et al., 2008; Daskalakis & Psillaki, 2008; Degryse et al., 2012; Hall et al., 2000; Mateeva et al., 2013; Serrasqueiro, 2011; Watson & Wilson, 2002).”