The Determinants of Informal Capital in the Financing of Small Firms at Start-Up: An Ethnic Comparison of Small Firms in Sweden

Darush Yazdanfar, Saeid Abbasian

Abstract


This study explains empirically the differences in the use of informal financing between native- and immigrant-owned small businesses in terms of ethnicity and other relevant variables. A sample of 2814 native- and immigrant-owned small businesses, consisting of a unique database gathered, was analysed and several univariate and multivariate methods employed. The results suggest that ethnicity is a significant explanatory variable and an important factor in informal capital access in the start-up stage in terms of loans from family members and friends. Moreover, the other independent variables, namely gender, age, experience of starting businesses, the amount of start capital, and firm size, affect loans from family members, whereas loans from friends are influenced by age, size, and industry affiliation. Since knowledge about informal capital determinants is limited, the results of this study add to our understanding of the variables that explain the financing behaviour of small businesses at start-up.

Full Text: PDF DOI: 10.5539/ijef.v5n3p62

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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