Financing Decisions Along a Firm’s Life‐Cycle: Debt as a Commitment Device

30 Pages Posted: 19 Oct 2011

See all articles by Julia Hirsch

Julia Hirsch

Universidad Autónoma de Querétaro

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Goethe University Frankfurt - Research Center SAFE

Date Written: November 2011

Abstract

We analyse the life‐cycle patterns of a firm’s financing decisions and their interaction with future growth and development decisions. We derive different financing sequences which we link to existing empirical research as well as derive new testable hypotheses regarding differences in firms’ financing decisions to project, firm, market and country characteristics. We provide a rationale for the importance of (external) start‐up debt financing as observed in recent empirical studies. Furthermore, we argue that equity financing at both development stages is more likely for closely‐held firms and in countries in which entrepreneurs face high stigmatisation costs.

Keywords: financing decisions, life‐cycle, firm growth, path dependencies

JEL Classification: D92, G32

Suggested Citation

Hirsch, Julia and Walz, Uwe, Financing Decisions Along a Firm’s Life‐Cycle: Debt as a Commitment Device (November 2011). European Financial Management, Vol. 17, Issue 5, pp. 898-927, 2011. Available at SSRN: https://ssrn.com/abstract=1946103 or http://dx.doi.org/10.1111/j.1468-036X.2011.00618.x

Julia Hirsch

Universidad Autónoma de Querétaro ( email )

Cerro de las Campanas S/N, Las Campanas
Queretaro, 76010
Mexico

Uwe Walz

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Center For Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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