External (bank) funding for SMEs: 'finance gap' versus 'pecking order theory'

Previous research suggests that a lack of external funding opportunities (referred to as a 'finance gap') might inhibit the growth of many small and medium enterprises (SMEs). Further, it has been suggested that banks might routinely discriminate against females causing the 'finance gap' to be more acute for female-controlled SMEs. Based on this concept of a 'finance gap' we would expect younger SMEs to have relatively less debt than older SMEs (other things being equal). By way of contrast, 'pecking order theory' suggests that SME owners will only consider external financing options where insufficient internal funds are available to take advantage of value adding opportunities. Based on 'pecking order theory', we would expect (other things being equal) younger firms to have relatively more debt than older SMEs (that have had time to generate internal funds). From the discussion above it can be seen that these two concepts ('finance gap' and 'pecking order theory') potentially lead to opposing conclusions with respect to the relative levels of external debt we might expect in younger versus older firms. It has also been suggested that, because females are more risk averse and have a higher need to be in control, 'pecking order theory' might apply more strongly to female- as opposed to male-controlled SMEs. However, the existing empirical research on the above issues is extremely limited. The aim of this study, therefore, was to gain a better understanding of the relationship between SME growth and external debt (bank) funding and, in particular, to determine if there are any significant differences between female- and male-controlled SMEs.