Financing SME Growth: The Role of the National Stock Exchange of Australia and Business Advisors Bruce Dwyer, University of New England, Armidale Bernice Kotey, University of New England, Armidale Lack of access to finance presents a major setback to the development of the Small and Medium Enterprise (SME) sector in Australia. Demand and supply of finance to the sector entails more complex issues than apply to large firms. SMEs have a pecking order of preference for finance; they prefer internal equity to debt and debt to external equity. Nonetheless, a significant number of growing SMEs require external equity. Using the grounded theory method, interviews with six owners and 13 accounting and legal advisors indicate entrenched lack of knowledge about initial public offering (IPO) and the National Stock Exchange of Australia (NSX) among SME owners and their advisors. The study finds that the NSX’s poor performance is attributable to lack of visibility, low listings, lack of underwriters, thin trading, inefficient processes and poor location. The NSX is entrenched in a vicious cycle of poor performance that threatens its viability. It is unable to attract sufficient listings to generate the income required for effective operation. Greater exposure of small business advisors to the IPO process should increase demand for public equity through the NSX. T he Small and Medium Enterprise (SME) sector is important to the Australian economy. At the end of June 2011, SMEs comprised 99.7% of all trading businesses in Australia (DIISR&TE 2012: 28). They contributed 57.1% to the Gross Domestic Product (GDP) and 70% to private sector employment (DIISR&TE 2012: 23). These contributions were achieved despite a number of barriers, especially access to finance (Stanger 2003). In Australia, the main sources of debt finance for SMEs are secured bank loans and overdrafts, while other sources such as leasing and factoring are used less fre- quently (DIISR&TE 2012). In general, access to and use of external equity by SMEs is lower than their use of debt (Berger and Udell 1998). However, more recently, an increase in demand for external equity by high-growth SMEs has fuelled the growth of Australian equity inter- mediaries, which link SMEs with private equity investors. In 2011, the Australian Bureau of Statistics (ABS) identified about 81 000 private unlisted Australian com- panies as medium-sized (DIISR&TE 2012) with between 20 and 199 employees. In addition, Hemphill and LeMes- surier (2012) estimate that at least 5% (4050) of medium- sized firms exhibit growth rates in excess of 20%. These are the businesses most likely to seek external equity. Apart from private external equity, these firms can raise equity from the public through the National Stock Ex- change (NSX), an exchange specifically structured to ac- commodate them. Nonetheless, their patronage of the NSX is low. Anecdotally, high-growth Australian SMEs prefer external equity from private equity partners, al- though the same firms accept initial public offerings (IPOs) through the Australian stock exchange as an exit pathway for their equity partners (Wholesale Investor 2013). The lack of patronage of the NSX may also be associated with lack of knowledge about its existence among SMEs and their advisors, in particular accoun- tants, known to be the primary source of advice for SMEs (Blackburn et al. 2014; Sage 2009). Using a qualitative research approach with grounded theory method, this paper seeks to explain the lack of interest among high- growth Australian SMEs in issuing IPOs on the NSX and the influence of accountants and lawyers in this regard. Literature Review Determinants of access to funding in SMEs It is well established that entrepreneurship and there- fore a vibrant SME sector is crucial to economic growth (Mateev and Anastasov 2010; Butler and Cornaggia 2011; Hutchinson and Xavier 2006; Bukvic and Bartlett 2003). The availability of finance through financial intermedi- aries is a necessary input to this process. King and Levine Correspondence: Bernice Kotey, University of New England Busi- ness School, University of New England, Madgwick Street, Armi- dale, NSW 2351. Tel: +61 2 6773 2830; fax: +61 2 6773 3596; email: bkotey@une.edu.au 114 Australian Accounting Review No. 73 Vol. 25 Issue 2 2015 doi: 10.1111/auar.12074