Mind the Gap – Financing Decisions in Midcap Firms Financing Strategy and Financing Process in Replacing Standard Mezzanine in Germany

Hill, Mark

Abstract

There is still limited knowledge available on how SME and midcap firms perform financing decisions and on what such a decision is based on. The literature revealed that capital structure theories can only partly explain parameters that determine financing decisions, particularly in a bank dominated lending environment like in Germany. Academic research tried to expand towards a broader and more strategic approach regarding a financing strategy and towards behavioural bias of a company’s management. Furthermore, existing research tried to identify an interaction between business strategy and financing strategy but failed to identify a causal direction so far.
The present research provides a unique research approach to bridge this gap as it introduces a new aspect into the discussion on the decision for a financing instrument and whether a formulated financing strategy is followed. Based on a case study approach that combines manager interviews, document analysis and calculation of key financial ratios, the research explores the management’s decision in a specific situation, the refinancing of standard mezzanine. Firms that used standard mezzanine had to perform a decent refinancing decision between the years 2011 and 2014 as there was no exact substitute instrument available in financing markets anymore.
The results showed that a financing strategy exists in the cases explored, but elements and form varied across cases. In addition, the cases indicated that behavioural bias on management level might exist, based on identified inefficiencies and delays. However, these inefficiencies cannot be primarily assigned to owner-managers as done by previous research. Furthermore, a causal direction between business strategy and financing strategy could be indicated in the cases investigated.
The results led to the development of a financing strategy typology, based on existing types of business strategies that might help to explain financing decisions. A template for a holistic financing strategy has been designed based on the investigations that allows midcap firms to establish and implement their own financing strategy (or adjust their existing strategy). The holistic framework provides core elements and financing principles as well as a prototype financing process that help to avoid the identified inefficiencies in their financing processes.

• Thesis Type: Thesis
• Deposit Date: Dec 13, 2016
• Publicly Available Date: Dec 13, 2016
• Keywords: SME's, midcap firms, financing decisions, finance strategy,
• Public URL: http://researchrepository.napier.ac.uk/Output/453629
• Contract Date: Dec 13, 2016
• Award Date: 2016-04