Disinterested, Disinclined, or Discouraged? - Determinants of Finance Seeking Among Australian Small and Medium-Sized Enterprises

Using the Business Longitudinal Database compiled by the Australian Bureau of Statistics, this paper investigates the effects of firm-level factors, including size, the number of employees, business strategy, and firm lifecycle, on finance seeking (both debt and equity) by Australian small and medium-sized enterprises (SMEs). We identify firms seeking and not seeking finance and firms successfully and unsuccessfully acquiring finance over time. Taking advantage of the longitudinal nature of our data, we identify how past finance-seeking experience affects future finance-seeking behavior, particularly in relation to discouraged finance-seekers (otherwise good credit and/or venture quality firms lacking the necessary confidence to seek finance because of a lack of past success). Using a lagged regression model, we find that firm business strategy and experience as a discouraged finance-seeker significantly affect future finance-seeking behaviour by SMEs. This has important policy and industry implications in that the observed demand for finance by SMEs and any implied credit rationing may understate the actual level because potential finance seekers do not apply for finance in anticipation of rejection