Persistence of Initial Debt in the Long-Term Employment Dynamics of New Firms
20 Pages Posted: 20 Jul 2007
This paper investigates whether a firm's future growth is independent of its initial debt structure. The non-parametric test consists of determining whether the conditional size distribution for firms surviving through early years of life depends upon debt-to-asset ratio at birth. Initially, I test for initial size dependence in the growth process by applying Pakes and Ericson (1998) procedure. I then test the hypothesis that initial debt-to-asset ratios are irrelevant to growth of ten-year old manufacturing firms. I reject the null of independence, and find evidence of a non-monotonic relationship between age ten conditional size and the initial debt-to-asset ratio.
Suggested Citation: Suggested Citation