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Financial Capital and Startup Survival

Jeongsik Lee

Drexel University - LeBow College of Business

Wei Zhang

Georgia Institute of Technology

December 11, 2010

Are entrepreneurs liquidity-constrained? We attempt to answer this question by investigating the impact of financial capital on startup survival. The analysis of about 5,000 startups from the Kauffman Firm Survey data shows that, controlling for human capital, having some type of financial capital increases survival chances, supporting the existence of liquidity constraints. Interestingly, however, the effects are not uniform across types of capital: securing loans is associated with higher survival likelihood but receiving equity investments shortens startup longevity. Accounting for the endogeneity in financing using the Inverse Probability Treatment Weighted (IPTW) estimation reveals that the negative effect of equity capital is largely due to selection. Our findings highlight the heterogeneous effects across types of financial capital, each of which works through a different dynamic in influencing entrepreneurial performance such as survival.

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Date posted: August 15, 2010 ; Last revised: December 15, 2010

Suggested Citation

Lee, Jeongsik and Zhang, Wei, Financial Capital and Startup Survival (December 11, 2010). Available at SSRN: https://ssrn.com/abstract=1659046 or http://dx.doi.org/10.2139/ssrn.1659046

Contact Information

Jeongsik Lee (Contact Author)
Drexel University - LeBow College of Business ( email )
3141 Chestnut Street
Philadelphia, PA 19104
United States

Wei Zhang
Georgia Institute of Technology ( email )
Atlanta, GA 30332
United States
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