How Do Banks Screen Innovative Firms? Evidence from Start-Up Panel Data

37 Pages Posted: 24 May 2012

See all articles by Martin Brown

Martin Brown

University of St. Gallen

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Daniel Hoewer

ZEW – Leibniz Centre for European Economic Research

María Fabiana Penas

Universidad Torcuato Di Tella

Date Written: 2012

Abstract

Start-up firms often face difficulties in raising external funds. Employing a unique panel dataset covering 9,715 start-up firms over the period 2007-2009, we find that high-tech startups are less likely to use bank finance and face more difficulties in raising bank finance than low-tech start-ups. We find that external credit scores do affect the availability of credit for start-up firms, but that banks rely less on external rating information in their decision making for high-tech start-ups than low-tech start-ups. Start-ups that have their main relation with a small bank use more bank finance and report less difficulties in getting credit. By contrast, a greater expertise of the bank in the firm’s industry is not associated with fewer difficulties to get bank loans. There are no differences between high-tech and low-tech start-ups regarding the impact of bank size.

Keywords: Innovation, Start-up, Credit information sharing, Soft information

JEL Classification: G2, G18, O16, P34

Suggested Citation

Brown, Martin and Degryse, Hans and Hoewer, Daniel and Penas, María Fabiana, How Do Banks Screen Innovative Firms? Evidence from Start-Up Panel Data (2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-032. Available at SSRN: https://ssrn.com/abstract=2065395 or http://dx.doi.org/10.2139/ssrn.2065395

Martin Brown

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Daniel Hoewer (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

María Fabiana Penas

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

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