Essays on external debt and equity finance for UK small businesses
This thesis presents three empirical studies related to external debt and equity finance for UK small and medium-sized enterprises (SMEs). The first explores the developments in bank credit market conditions over the period 2010-2017. The evidence suggests that business overdrafts and term loans show slightly different trends in the wake of the global financial crisis. Since 2014, rejection rates reduced for both facilities but remained stable in the run-up to the 2016 Brexit referendum and its immediate aftermath, although the overdraft market became tighter for exporting SMEs. Start-ups and micro firms experienced significantly improved credit conditions after 2014, particularly for overdrafts, although the loan market remained tight. The second study investigates the relationship between awareness of the Enterprise Finance Guarantee Scheme (EFGS), financial literacy and bank borrowing discouragement. Financially literate SMEs appear to be more likely to be aware of EFGS and, in turn, aware SMEs are less likely to be discouraged from borrowing. Empirical findings indicate that raising EFGS awareness could bring all borrowers back to the overdraft market, but only high-risk borrowers back to the loan market. Finally, improving financial literacy encourages low-risk borrowers to take out loans but discourages high-risk borrowers. The third empirical study examines the role of angels in equity crowdfunding (ECF) dynamics. One prominent example of ECF innovations is the growing role of institutional investors (mainly business angels) who co-invest alongside the crowd. For ECF funding dynamics, the number of investors exhibits a double L-shaped pattern, with the first spike observed at the start in all campaigns and the second after the target capital is reached in successful campaigns. We find a more pronounced L-shape when an angel co-invests, although this effect weakens when information asymmetry is mitigated as in seasoned ECF offerings or after overfunding.
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