IDEAS home Printed from https://ideas.repec.org/a/sae/entthe/v16y1991i1p53-64.html
   My bibliography  Save this article

Debt, Liquidity, and Profitability Problems in Small Firms

Author

Listed:
  • Wallace N. Davidson III
  • Dipa Dutia

Abstract

Small business writers and researchers often base their analysis on the assumption that small businesses are undercapitalized and have low liquidity. Surprisingly few researchers have addressed this issue even though these assumptions permeate the literature. Using data from Robert Morris and Associates’ Annual Statement Studies for 86,000 firms in 343 industries over five years, we show that small firms have higher debt ratios than larger firms. Comparisons of the liquidity ratio and profitability ratio between large and small firms yield mixed results, which is at variance from past research.

Suggested Citation

  • Wallace N. Davidson III & Dipa Dutia, 1991. "Debt, Liquidity, and Profitability Problems in Small Firms," Entrepreneurship Theory and Practice, , vol. 16(1), pages 53-64, October.
    • Handle: RePEc:sae:entthe:v:16:y:1991:i:1:p:53-64
    DOI: 10.1177/104225879101600105
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/104225879101600105
    Download Restriction: no
    File URL: https://libkey.io/10.1177/104225879101600105?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stoll, Hans R. & Curley, Anthony J., 1970. "Small Business and the New Issues Market for Equities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 5(3), pages 309-322, September.
    2. Ang, James S & Peterson, David R, 1985. "Return, Risk, and Yield: Evidence from Ex Ante Data," Journal of Finance, American Finance Association, vol. 40(2), pages 537-548, June.
    3. Philip L. Cooley & Charles E. Edwards, 1983. "Financial Objectives of Small Firms," Entrepreneurship Theory and Practice, , vol. 8(1), pages 27-31, July.
    4. Alex Denoble & Donald M. Moliver, 1983. "The Small Business Dilemma: Can Cooperation Help?," Entrepreneurship Theory and Practice, , vol. 7(3), pages 51-58, January.
    5. Robert A. Peterson & George Kozmetsky & Nancy M. Ridgway, 1983. "Perceived Causes of Small Business Failures: A Research Note," Entrepreneurship Theory and Practice, , vol. 8(1), pages 15-19, July.
    6. Gupta, Manak C, 1969. "The Effect of Size, Growth, and Industry on the Financial Structure of Manufacturing Companies," Journal of Finance, American Finance Association, vol. 24(3), pages 517-529, June.
    7. John Deeks, 1973. "The Small Firm — Asset Or Liability?," Journal of Management Studies, Wiley Blackwell, vol. 10(1), pages 25-47, February.
    8. Lawrence Finley, 1984. "Can your Small Company Acquire Resources as Favorably as the Large Company?," Entrepreneurship Theory and Practice, , vol. 9(1), pages 19-25, July.
    9. Frank Chifeng Jen, 1963. "The Determinants Of The Degree Of Insufficiency Of Bank Credit To Small Business," Journal of Finance, American Finance Association, vol. 18(4), pages 694-695, December.
    10. Martin, Linda J. & Henderson, Glenn V., 1983. "On Bond Ratings and Pension Obligations: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(4), pages 463-470, December.
    11. Stephen H. Archer & LeRoy G. Faerber, 1966. "Firm Size And The Cost Of Externally Secured Equity Capital," Journal of Finance, American Finance Association, vol. 21(1), pages 69-83, March.
    12. Chan, K. C. & Chen, Nai-fu & Hsieh, David A., 1985. "An exploratory investigation of the firm size effect," Journal of Financial Economics, Elsevier, vol. 14(3), pages 451-471, September.
    13. N/A, 1983. "American Journal of Small Business," Entrepreneurship Theory and Practice, , vol. 7(3), pages 61-61, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Reuben Vinnell & R. T. Hamilton, 1999. "A Historical Perspective on Small Firm Development," Entrepreneurship Theory and Practice, , vol. 23(4), pages 5-18, July.
    2. Paola Valbonesi & Federico Biagi, 2016. "Incentivising Innovation and Adoption of ICT: ICT Innovation Voucher Programmes," JRC Research Reports JRC104057, Joint Research Centre.
    3. Jan Brinckmann & Soeren Salomo & Hans Georg Gemuenden, 2011. "Financial Management Competence of Founding Teams and Growth of New Technology–Based Firms," Entrepreneurship Theory and Practice, , vol. 35(2), pages 217-243, March.
    4. Richard G. P. McMahon, 2001. "Growth and Financial Profiles Amongst Manufacturing SMEs from Australia's Business Longitudinal Survey," Entrepreneurship Theory and Practice, , vol. 26(2), pages 51-61, December.
    5. Chandler, Gaylen N. & Hanks, Steven H., 1998. "An examination of the substitutability of founders human and financial capital in emerging business ventures," Journal of Business Venturing, Elsevier, vol. 13(5), pages 353-369, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James J. Chrisman & John Leslie, 1989. "Strategic, Administrative, and Operating Problems: The Impact of Outsiders on Small Firm Performance," Entrepreneurship Theory and Practice, , vol. 13(3), pages 37-52, April.
    2. A. B. Ibrahim & J. R. Goodwin, 1986. "Perceived Causes of Success in Small Business," Entrepreneurship Theory and Practice, , vol. 11(2), pages 41-50, October.
    3. James J. Chrisman & Alan Bauerschmidt & Charles W. Hofer, 1998. "The Determinants of New Venture Performance: An Extended Model," Entrepreneurship Theory and Practice, , vol. 23(1), pages 5-29, October.
    4. Vincenzo Maggioni & Mario Sorrentino & Mary Williams, 1999. "Mixed Consequences of Government Aid for New Venture Creation: Evidence from Italy," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 3(3), pages 287-305, September.
    5. Deeds, David L. & Decarolis, Dona & Coombs, Joseph E., 1997. "The impact of firmspecific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry," Journal of Business Venturing, Elsevier, vol. 12(1), pages 31-46, January.
    6. Hakan Uslu & Larry Teeter, 2017. "Shutdown Decision of Firms Based on Variable Costs and Demand," The American Economist, Sage Publications, vol. 62(1), pages 43-65, March.
    7. Philip D. Olson, 1985. "Entrepreneurship: Process and Abilities," Entrepreneurship Theory and Practice, , vol. 10(1), pages 25-31, July.
    8. Steven J. Torok & Dale J. Menkhaus & Alan Schroeder, 1991. "Management assistance needs of small food and kindred products processors," Agribusiness, John Wiley & Sons, Ltd., vol. 7(5), pages 447-461.
    9. Nico Dewaelheyns & Cynthia Hulle, 2008. "Legal reform and aggregate small and micro business bankruptcy rates: evidence from the 1997 Belgian bankruptcy code," Small Business Economics, Springer, vol. 31(4), pages 409-424, December.
    10. Jackson André da Silva & Nério Amboni & Anacleto Ângelo Ortigara & Alexandre Marino Costa, 2014. "Business DNA: an Analysis of Micro and Small Companies in the State of Santa Catarina," Brazilian Business Review, Fucape Business School, vol. 11(2), pages 115-134, March.
    11. Richard B. Carter & Howard E. Van Auken, 1991. "Personal Equity Investment and Small Business Financial Difficulties," Entrepreneurship Theory and Practice, , vol. 15(2), pages 51-60, January.
    12. Julia Koralun-Bereźnicka, 2014. "Industry and Size Effects in Corporate Performance: An Empirical Research on Selected EU Countries," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 2(2), pages 34-42.
    13. Evaldo Guimarães Barbosa & Cristiana De Castro Moraes, 2003. "Determinants Of The Firm’S Capital Structure - The Case Of The Very Small Enterprises," Finance 0302001, University Library of Munich, Germany, revised 06 Oct 2003.
    14. Saban Celik, 2012. "Theoretical and Empirical Review of Asset Pricing Models:A Structural Synthesis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 141-178.
    15. Li, Yuming, 1998. "Expected stock returns, risk premiums and volatilities of economic factors1," Journal of Empirical Finance, Elsevier, vol. 5(2), pages 69-97, June.
    16. Karel Janda, 2019. "Earnings Stability and Peer Company Selection for Multiple Based Indirect Valuation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 37-75, February.
    17. Narayan, Paresh Kumar & Sharma, Susan Sunila, 2011. "New evidence on oil price and firm returns," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3253-3262.
    18. Zhang, Han & Guo, Bin & Liu, Lanbiao, 2022. "The time-varying bond risk premia in China," Journal of Empirical Finance, Elsevier, vol. 65(C), pages 51-76.
    19. Jorge H. del Castillo-Spíndola, 2006. "A Non-Parametric Test of the Conditional CAPM for the Mexican Economy," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 275-297.
    20. Buch, Claudia M. & Döpke, Jörg & Stahn, Kerstin, 2008. "Great moderation at the firm level? Unconditional versus conditional output volatility," Discussion Paper Series 1: Economic Studies 2008,13, Deutsche Bundesbank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:entthe:v:16:y:1991:i:1:p:53-64. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.