Economic Quarterly

Winter 1994

Firm Size, Finance, and Investment

John A. Weinberg

A considerable body of evidence suggests differences between large and small firms in financial and investment behavior. Many observers have taken this evidence to suggest the existence of market imperfections that put small firms at a disadvantage in raising capital. This “market failure” interpretation focuses on financial differences while ignoring other important differences among firms of varying sizes. An alternative theoretical perspective based on the life cycle of firms appears to be consistent with much of the existing evidence.

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