Table 1. Main financing mechanisms and their potential to influence a firm’s strategy.

See section S1 for a glossary of all financial terms used throughout the paper.

Type of financing	Financing mechanism		Description	Potential to impact firm strategy
Internal	Retained earnings		Profits generated by a company that are not distributed as dividends.	None, as it is the firm itself deciding about the use of proceeds.
External	Informal finance		A broad range of instruments, most importantly trade credit and leasing, as well as financing from friends and relatives.	No institutional mechanism in place. Little potential with trade credit and leasing as this is usually tied to particular assets being prefinanced.
	Venture capital		A form of financing provided to startup companies and small businesses deemed to have high growth potential.	Depends on the ambition of the investors and where they perceive the enhanced value of the company to lie. Venture capitalists usually aim at selling their stake relatively quickly.
	Debt	Loan	A direct lending for particular projects or to the organization. It may be via preapproved credit line that can be drawn on demand. Loans are flexible and can be unsecured or secured by a borrower’s assets, as well as long term or short term (often used for immediate expenses, such as acquisitions).	Mainly upon the closure of the contract. Covenants (i.e., conditions associated to the loan) can be written into the contract and are then subject to monitoring and enforcement. Supervisors of lenders may also require they assess nonfinancial risks of loans and the loan portfolio.
		Bond	A type of loan tradable on the market. It is accessible for large organizations and comes with requirements regarding disclosure of financial information. Usually organized by a group (“syndicate”) of financial institutions who try to place the bond issue with investors.	Mainly upon origination of the bond issue. Additional requirements can be written into covenants and subject to monitoring throughout. “Green” bonds use the principal amount or the proceeds to specifically further environmental objectives. Stock exchanges may require the disclosure of information from companies being listed.
	Equity		A stock market instrument (although it can also be placed privately) linked to the process of raising capital through the sale of shares in a company. It provides a claim on part of the profits (dividend) as well as voting rights.	Ownership of the share in the firm allows shareholder to speak up during annual general meetings and advocate particular causes or organize petitions among shareholders that can be voted. The higher the share, the more influence. Stock exchanges may require the disclosure of information from companies being listed.