An original Equity Requirement Estimation Model

During the last few years, the question of whether the growth of Italian SMEs, and young, innovative firms in particular, is being restricted by a lack of equity capital, and if so to what extent, has attracted the attention of both researchers and practitioners.The main aim of this chapter is to identify and verify the causes which generate financial needs to be covered by equity, and to estimate the absolute and relative size of the investment required. The contribute consists of two main sections. The first examines the models adopted to compute the additional equity needed to finance the expected growth in sales, and the sample of SMEs to which the different models have been applied. Particular attention is paid to the sample selection criteria – crucial for a proper explanation of the results – and the structural characteristics which emerge from an analysis of the firms’ financial statements. The second section surveys the key variables included in the models and evaluates the results stemming from their application. Finally, the main conclusions of the study are presented.