A Cluster Analysis Approach to Financial Structure in Small Firms in the United States

This paper uses data from the 1993 National Survey of Small Business Finances sponsored by the Board of Governors of the Federal Reserve Board and the U.S. Small Business Administration to explore the equity and debt structure of small firms in the United States. Initially the paper provides descriptive detail of financial structure that is then used in a cluster analysis process to help identify a range of possibly "typical" financial structures. Results are also presented of exploratory analysis that seeks to identify associations with a range of variables posited to influence such structures. Included are industry, age, profit (measured in absolute and relative terms), sales growth, asset structure, and size (measured by sales and employee numbers). Results are generally supportive of the general agency cost explanations of financial structure in small firms.