The Capital Structure Decisions of New Firms: Second in a Series of Reports Using Data from the Kauffman Firm Survey
20 Pages Posted: 1 Nov 2008 Last revised: 31 Mar 2010
Date Written: November 1, 2008
This paper investigates the capital structure choices that firms make in their initial year of operations, 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 heavily on friends and family-based funding sources. This striking fact holds even when we purge each firm's credit score of variation due to demand-side credit characteristics. The heavy reliance on external debt underscores the importance of well functioning credit markets for the success of nascent business activity.
Keywords: capital structure, start-up, startup, funding, Kauffman Firm Survey, debt, sources
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