The focus of the lecture is on fruitful methodologies for future research into small business activity. This presentation has two goals, each expressed in the context of small, entrepreneurial firms. The first relates to dynamics; the second to risk.First, it argues that static models of small firms, especially when financing issues and choice of markets are being explored, are likely to be misleading. This point is illustrated by two empirical modelling exercises. One, (a), relates to the choice of capital structure, and the other, (b), to the internationality of the main market. (a) The static approach, which specifies a unique desirable gearing level, is contrasted unfavourably with the dynamic approach, in which the small firm selects a desirable trajectory of gearing over time. The other (b) relates to the choice of main market for the small firm's product, which is modelled by a Markovian process, allowing the derivation of both the long run equilibrium choice of market, and 'passage to equilibrium' (short run) market choices. It is shown that these two equilibria can differ considerably.Second, it argues that, in highly risky small business environments, which are characteristic of high technology start-ups, agents' attitudes to risk, in and of themselves, may have a considerable bearing on the level of outside equity funding injected into any firm. This is illustrated by a modelling exercise in which the levels of venture capital equity funding allocated are explained by attitudinal variables relating to factors like risk reporting, due diligence, and information provision.In sum, it argues the case for two new methodologies in the small business field, one focussing on dynamics, and the other on risk, and substantiates these arguments with appropriate supporting empirical modelling exercises.


Gavin Reid

Universität St. Andrews


22.01.2009 | 16:00 - 17:30 Uhr

Event Location

ZEW, L 7,1 D-68161 Mannheim


Senior Researcher