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The relevance of pecking order hypothesis for the financing of computer software and biotechnology small firms: some UK evidence

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Abstract

This study explores the funding issues at the early stages of development of computer software and biotechnology small firms in the UK. This study reviewed previous relevant literature in this area and presents empirical evidence derived from an extensive online questionnaire survey. The sample contains a total of 83 small firms, which includes 41 biotechnology and 42 software firms. With regards to funding issues, we found that software firms reports more funding problems than the biotechnology firms. Software firms are fastest growing firms and goes through the early stages of development quicker than the biotechnology firms. With regards to the sources of funding the evidence shows that biotechnology small firms mainly use venture capital finance whilst the main source of funding for the software firms are personal savings and house mortgage/re-mortgage. On the one hand, software firms seem to follow the pecking order hypothesis whilst financing their business growth and development. On the other hand, the pecking order hypothesis may not be fully followed by the biotechnology small firms. However, both software and biotechnology small firms report difficulties in securing equity finance. Software firms are financially constrained not only due to the supply side financial constraints but also by the demand side financial constraints.

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Notes

  1. The questionnaire was originally conducted as part of a study on the financing of technology-based small firms and the role of location (See Ullah, 2005, for details). Of the 825 firms, 108 declined to participate in the survey, whereas 124 firms email addresses were wrong and the emails therefore, bounced back. Therefore, the total firms which were expected to respond were 593 of which 133 responded and in this way the response rate is around 22.45%.

  2. According to the Bank of England (2001) report firms with less than 0–9 employees are micro firms whereas those 10–49 employees are calssed as small firms. Similarly, firms with 50–249 employees are regarded as medium size firms.

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Authors and Affiliations

  1. COMSATS Institute of Information technology (CIIT), Islamabad, Pakistan

    Farid Ullah & Qaisar Abbas

  2. University of Liverpool Management School, Liverpool, England

    Saeed Akbar

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  1. Farid Ullah
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  2. Qaisar Abbas
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  3. Saeed Akbar
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Correspondence to Farid Ullah.

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Ullah, F., Abbas, Q. & Akbar, S. The relevance of pecking order hypothesis for the financing of computer software and biotechnology small firms: some UK evidence. Int Entrep Manag J 6, 301–315 (2010). https://doi.org/10.1007/s11365-008-0105-0

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  • DOI: https://doi.org/10.1007/s11365-008-0105-0

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