Capital structure in new technology-based firms: Evidence from the Irish software sector

Using a sample of 117 Irish software companies, we examine the capital structure of new technology-based firms. Consistent with the findings on financing for other small businesses, internal funds are the most important source of funding in new technology-based firms. However, in apparent contradiction to the pecking order hypothesis, the use of debt is rare and equity financing is the prime source of external finance. By questioning chief executive officers via survey on their perceptions and opinions on various financing issues, we are able to conclude that in many cases software firm founders prefer outside equity to debt. The dearth of debt in the capital structure of new technology-based firms cannot be wholly explained by financing constraints due to information asymmetries in the banking sector.