The Capital Structure Decisions of New Firms
University of California, Berkeley - Coleman Fung Institute for Engineering Leadership; Kauffman Foundation; University of Colorado at Boulder; Federal Reserve Banks - Federal Reserve Bank of Atlanta; University of Deusto - Basque Institute of Competitiveness; Marin Economic Consulting
David T. Robinson
Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER)
February 11, 2009
This paper investigates the capital structure choices that firms make in their initial year of operation, using restricted-access data from the Kauffman Firm Survey. Contrary to many accounts of startup activity, the firms in our data rely heavily on external debt sources such as bank financing, and less extensively on friends and family-based funding sources. This fact is robust to numerous controls for credit quality, industry, and business owner characteristics. The heavy reliance on external debt underscores the importance of well functioning credit markets for the success of nascent business activity.
Number of Pages in PDF File: 34
Keywords: entrepreneurial finance, pecking order, start ups
JEL Classification: G32, M13
Date posted: February 20, 2009
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