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Getting rich isn’t always glorious

Getting rich isn’t always glorious

It’s well known that small and medium-sized enterprises struggle to grow, but maybe they’re content as they are. A new study out of the University of Waikato has found support for what’s known as the ‘contentment hypothesis’, and it’s won best paper award at Waikato Management School’s 13th Annual Student Research Conference.

Kenny Bell, who has just completed a Bachelor of Computing and Mathematic Sciences with honours, majoring in mathematics and finance, analysed a survey of more than 2,000 SMEs in seven countries, and found no evidence to show that smaller firms faced greater obstacles in sourcing external funds. Instead, he found that the most important factor in deciding a firm’s capital structure was the firm’s own desire for financing.

“Previous studies of capital structure in SMEs have presupposed these firms largely act to maximise their financial wealth, which means they seek to grow and need external finance to do so,” says Bell. “And if they don’t grow, the presumption is that somehow they can’t access external financing. My research shows that’s not in fact the case. There’s more external finance out there than is commonly thought; but many firms simply don’t want it.”

He also found that business owners with a higher level of education tended to favour less external debt, offering support for the contentment hypothesis explanation that these owners are wiser, less concerned with financial wealth and more concerned with retaining control of their businesses.

“My findings indicate that we need to change the way SMEs are studied. We need to consider the different intentions and objectives of small firms, and we can’t simply assume that all SMEs are looking to grow in order to maximise their financial wealth.”

Bell is now planning to embark on a PhD looking more closely at the issues raised by his research – and in particular the assumption that more educated business owners are ‘wiser’. “My success at the Student Research Conference was a big factor in my decision,” he says. “I felt it really gave me credibility as a researcher and gave me more confidence in being able to obtain funding for my PhD on this topic.”

More than 50 student researchers from 12 universities in New Zealand and Australia presented research papers at the conference, held last week at Waikato Management School. The award for the best presentation went to Yvonne Matthews from Waikato Management School who delivered a paper entitled “Valuation of Environmental Improvements to Hamilton Streams: A Choice Modelling Approach


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