The Modigliani-Miller Proposition after Fifty Years and its Relation to Entrepreneurial Finance

Frequently described as a ‘much ignored' focus of academic research, small venture financing has been the subject of a burgeoning literature in the past two decades. A considerable amount of research comprises empirical tests of theories developed in the field of corporate finance. Notwithstanding differences in organizational structures and financial markets accessed by firms in the SME and corporate sectors, results of these studies emphasize the significance of two approaches; theories based on information asymmetry, and agency. Empirical evidence suggests that capital structures of SMEs are partly determined by a combination of firm-specific characteristics and owner-specific factors, such as desire for control and managerial independence. Whilst firm owner preferences are paramount in determining capital structure, the common underlying factor in accessing external finance is the alleviation of information asymmetries which is relatively easier for firms with a high level of fixed assets accessing debt markets