Blockchain-Based Tokens as Financing Instruments: Capital Market Access for SMEs?

Sme Financing Constraints And Retail Investment Gap

Ever since the seminal work of (Coase 1937), economic theory has been debating the determinants of optimal firm size. SMEs employ much of the world’s human capital but often face serious obstacles to their growth, among which limited access to finance is an important one (Beck and Demirguc-Kunt 2006). The corporate finance literature has consistently shown a higher leverage ratio for larger firms (Booth et al. 2001; Fama and French 2002; Kurshev and Strebulaev 2015; Rajan and Zingales 1995; Titman and Wessels 1988). Hennessy and Whited (2007) find substantially higher external financing costs for smaller firms, which implies that that these firms face a greater risk of default. It is much costlier for small firms to issue new equity or long-term debt, which suggests that smaller firms may prefer short term debt in the form of bank loans due to lower fixed costs (Smith 1977; Titman and Wessels 1988). One reason for these higher costs is a risk premium for the greater volatility of company assets in smaller firms, which are likely to grow faster and to be located in volatile industries (Fama and French 2002). Kurshev and Strebulaev (2015) offer the additional explanation that the degree of information asymmetry in capital markets may be lower for large firms due to greater investor acuity. A third reason is that fixed costs decline with company size, leading for example to smaller time frames between refinancing rounds (Kurshev and Strebulaev 2015).