Small-scale private equity: Demand versus supply

Research output: Contribution to journalArticleResearchpeer-review

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Abstract

Purpose
This paper aims to bridge the gap between theoretical dissertations on the demand and supply for equity by Australian small and medium-sized enterprises (SMEs) and the reality of the capital raising markets.

Design/methodology/approach
The mixed-methods approach includes questions integrated into a survey of 26,000 SMEs paired with semi-structured interviews with the CEOs or Chairs of the 15 Australian small-scale private equity (SSPE) firms.

Findings
Contrary to capital structure theory expectations, 46 per cent of Australian SMEs are interested in equity funding, despite a stated ability to acquire additional debt. The authors reveal a mismatch between supply and demand for SSPE with few SMEs able to meet private equity (PE) firms’ stringent investment criteria.

Research limitations/implications
The population of Australian SSPE firms is small and interviewee responses are qualitative and are not easily replicated.

Practical implications
To improve SSPE market liquidity, SMEs must overcome severe information asymmetry to demonstrate their quality and reduce the cost of due diligence for PE firms. One relatively easy step is for SMEs to voluntarily adopt auditable financial controls on SMEs similar to publicly traded firms.

Originality/value
Few studies focus on small firm equity, which is essential to economic growth and innovation. The authors use a large data set of Australian SMEs and unique informationally rich interview data on the population of Australian firms in SSPE, an industry known for its lack of transparency.
Original languageEnglish
JournalAccounting Research Journal
DOIs
Publication statusE-pub ahead of print - 30 Jan 2020

Fingerprint

Small and medium-sized enterprises
Private equity
Equity
Investment criteria
Design methodology
Demand and supply
Information asymmetry
Financial control
Structured interview
Funding
Innovation
Firm investment
Economic growth
Integrated
Transparency
Industry
Equity markets
Costs
Market liquidity
Mixed methods

Cite this

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title = "Small-scale private equity: Demand versus supply",
abstract = "PurposeThis paper aims to bridge the gap between theoretical dissertations on the demand and supply for equity by Australian small and medium-sized enterprises (SMEs) and the reality of the capital raising markets.Design/methodology/approachThe mixed-methods approach includes questions integrated into a survey of 26,000 SMEs paired with semi-structured interviews with the CEOs or Chairs of the 15 Australian small-scale private equity (SSPE) firms.FindingsContrary to capital structure theory expectations, 46 per cent of Australian SMEs are interested in equity funding, despite a stated ability to acquire additional debt. The authors reveal a mismatch between supply and demand for SSPE with few SMEs able to meet private equity (PE) firms’ stringent investment criteria.Research limitations/implicationsThe population of Australian SSPE firms is small and interviewee responses are qualitative and are not easily replicated.Practical implicationsTo improve SSPE market liquidity, SMEs must overcome severe information asymmetry to demonstrate their quality and reduce the cost of due diligence for PE firms. One relatively easy step is for SMEs to voluntarily adopt auditable financial controls on SMEs similar to publicly traded firms.Originality/valueFew studies focus on small firm equity, which is essential to economic growth and innovation. The authors use a large data set of Australian SMEs and unique informationally rich interview data on the population of Australian firms in SSPE, an industry known for its lack of transparency.",
author = "Bruce Dwyer and Keith Duncan and Colette Southam",
year = "2020",
month = "1",
day = "30",
doi = "10.1108/ARJ-05-2019-0096",
language = "English",
journal = "Accounting Research Journal",
issn = "1030-9616",
publisher = "Emerald Group Publishing Ltd.",

}

Small-scale private equity: Demand versus supply. / Dwyer, Bruce; Duncan, Keith; Southam, Colette.

In: Accounting Research Journal, 30.01.2020.

Research output: Contribution to journalArticleResearchpeer-review

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AB - PurposeThis paper aims to bridge the gap between theoretical dissertations on the demand and supply for equity by Australian small and medium-sized enterprises (SMEs) and the reality of the capital raising markets.Design/methodology/approachThe mixed-methods approach includes questions integrated into a survey of 26,000 SMEs paired with semi-structured interviews with the CEOs or Chairs of the 15 Australian small-scale private equity (SSPE) firms.FindingsContrary to capital structure theory expectations, 46 per cent of Australian SMEs are interested in equity funding, despite a stated ability to acquire additional debt. The authors reveal a mismatch between supply and demand for SSPE with few SMEs able to meet private equity (PE) firms’ stringent investment criteria.Research limitations/implicationsThe population of Australian SSPE firms is small and interviewee responses are qualitative and are not easily replicated.Practical implicationsTo improve SSPE market liquidity, SMEs must overcome severe information asymmetry to demonstrate their quality and reduce the cost of due diligence for PE firms. One relatively easy step is for SMEs to voluntarily adopt auditable financial controls on SMEs similar to publicly traded firms.Originality/valueFew studies focus on small firm equity, which is essential to economic growth and innovation. The authors use a large data set of Australian SMEs and unique informationally rich interview data on the population of Australian firms in SSPE, an industry known for its lack of transparency.

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