Theoretical Issues in Small Enterprise Financial Management

Chapter 3 established a range of common circumstances and differentiating features that explain the rationale evident throughout this book that financial management of small enterprises is, or should be, different from that of large enterprises. In this chapter the consideration of aspects of finance theory applicable to small enterprises is expanded to incorporate agency theory, signalling theory and capital structure theory, In each case the main features of the theory are summarised and then the relevance and implications for small enterprise financial management are considered. The intent is to examine the contribution the mainstream interpretation of those theories makes to understanding small enterprise actions, and if the unique circumstances of small enterprise settings expand the understanding of the theories application. Special emphasis is placed on the extension of signalling theory to understanding small firm financial reporting.