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- PublicationIs there a high technology pecking order? An investigation of the capital structure of NTBFs in the Irish software sectorThis paper examines the financing of 117 privately held new technology-based firms (NTBFs) in the Irish software product sector. We advance the high-technology pecking order hypothesis (HTPOH) to explain the dominance of external equity over debt in NTBFs. Using founders’ opinions and perceptions on various financing issues, we find evidence consistent with four implications of the HTPOH. Sample firm founders perceive low tax benefits of debt, and very high levels of business risk as reflected in pessimism about their likelihood of survival even with adequate financing. In addition, founders perceive greater information asymmetries in debt than in private equity markets. This finding is consistent with the spirit of Myers’ (1984) and Myers and Majluf’s (1984) pecking order hypothesis in that firms prefer sources of finance associated with the least information asymmetry. A related finding is that founders believe issuing equity sends a positive signal to clients, suppliers and financiers.
- PublicationWhat factors determine the use of venture capital? Evidence from the Irish software sectorWe address the venture capital financing issue from the firm’s perspective. Using survey data for 110 new technology-based firms (NTBFs) in the Irish software sector, we assess the extent to which 5 human capital and 3 other variables determine the firm’s use of venture capital. Education of the lead founder to degree level is the only significant human capital variable, and it is directly related to the likelihood of being venture capital-backed. Venture capital-backed firms have significantly higher start-up costs, and their founders are less averse to loss of control than non-venture capital-backed firms. We conclude that the use of venture capital is dictated largely by the willingness of founders to relinquish control.
- PublicationCapital structure in new technology-based firms : evidence from the Irish software sectorUsing a sample of 117 Irish software companies, we examine the capital structure of new technology-based firms. Consistent with the findings on financing for other small businesses, internal funds are the most important source of funding in new technology-based firms. However, in apparent contradiction to the pecking order hypothesis, the use of debt is rare and equity financing is the prime source of external finance. By questioning chief executive officers via survey on their perceptions and opinions on various financing issues, we are able to conclude that in many cases software firm founders prefer outside equity to debt. The dearth of debt in the capital structure of new technology-based firms cannot be wholly explained by financing constraints due to information asymmetries in the banking sector.