The evolution of financing environment for small and medium-size entrepreneurs (SMEs) and private firms: where did the money come from and go to in the 21st century?

This project aims to explore the new pattern of financing and investment decisions of small businesses and start-ups. Due to the lack of financial information, in the past small and private firms have faced difficulties to obtain loans from financial institutions (mainly banks). This situation has changed, however. In the 21st century, financial services have been heavily integrated with technology (the so-called financial technology or Fintech). This development has had a large influence on the traditional operation of capital markets. Now, small businesses have another channel to seek funding from – online platforms. This has opened the door for businesses to access a new source of funding from ‘the crowd’, directly bypassing the traditional funding barrier e.g. banks. In addition, another financial instrument called Initial Coin of Offerings (ICOs) are now growing fast and becoming available in the new financial markets also bypassing traditional financial institutions. Thus, they have started to be another potential financing source in the future. A number of research questions are open to be investigated, such as:
- What are the relationships between new and traditional finance providers?
- To what extent do crowdfunding and ICOs change SMEs and private firms’ financing preferences?
- Are traditional financing approach and new financial instruments complements or substitutes?

This project aims to investigate the above research topics and will investigate in particular what has changed in SMEs and private firms in terms of their capital structure (sources of money) and how they allocate their funds (use of money) by considering the new sources of funds.