Persistence of Initial Debt in the Long-Term Employment Dynamics of New Firms

20 Pages Posted: 20 Jul 2007

See all articles by Robert J. Petrunia

Robert J. Petrunia

Lakehead University - Department of Economics

Abstract

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

Petrunia, Robert J., Persistence of Initial Debt in the Long-Term Employment Dynamics of New Firms. Canadian Journal of Economics, Vol. 40, No. 3, pp. 861-880, August 2007, Available at SSRN: https://ssrn.com/abstract=1001795 or http://dx.doi.org/10.1111/j.1365-2966.2007.00434.x

Robert J. Petrunia (Contact Author)

Lakehead University - Department of Economics ( email )

Thunder Bay, P7B 5E1
Canada

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