Frontiers of Entrepreneurship Research
1997 Edition

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FINANCIAL PRACTICES AMONG HIGH-GROWTH ENTREPRENEURIAL FIRMS

J. William Petty, Baylor University
John D. Martin, The University of Texas at Austin


INTRODUCTION
SEPARATION OF OWNERSHIP AND CONTROL
METHODOLOGY
RESULTS

Entrepreneurial Firms: Looking at the Numbers
TABLE 1: Comparison of Financial Profiles of Entrepreneur of the Year Firms and Industry Matched Publicly-Traded Firms
TABLE 2: Sources of Financing for EOY Firms: 1995
TABLE 3: After-tax Operating Return on Total Capital
Understanding the Differences
TABLE 4: Board Member Involvement

CONCLUSIONS
REFERENCES
APPENDIX Evaluating Firm Liquidity

ABSTRACT

Rapidly growing entrepreneurial firms provide the backbone for job creation and growth in the economy yet relatively little is known about them. We use the results of a survey of Entrepreneur of the Year Award winning firms in comparison with a matching set of publicly-traded mature firms to analyze the financial practices and performance of entrepreneurial firms. We find that entrepreneurial firms utilize capital more effectively to produce significantly higher rates of return on invested capital, utilize significantly more debt financing, and earn superior returns on invested equity capital. Furthermore, we observe a significant involvement on the boards of directors of entrepreneurial firms of individuals with significant equity investments and with connections to the founders of the firm.

 

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