Debt Financing, Survival, and Growth of Start-Up Firms

48 Pages Posted: 9 Oct 2014 Last revised: 26 Nov 2017

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Tatyana Sokolyk

Brock University - Department of Finance, Operations & Information Systems

Date Written: October 31, 2017

Abstract

We analyze the relation between different forms of debt financing at the firm’s start-up and subsequent firm outcomes. We distinguish between business debt, obtained in the name of the firm, and personal debt, obtained in the name of the firm’s owner and used to finance the start-up firm. Start-up firms with better performance prospects are more likely to use debt and, in particular, business debt. Compared to all-equity firms, firms using debt at the initial year of operations are significantly more likely to survive and achieve higher levels of revenue three years after the firm’s start-up. However, results hold for business debt only. Debt obtained in the name of the firm is associated with longer survival time and higher revenues, while debt obtained in the name of the firm’s owner has no effect on survival time and is associated with lower revenues.

Keywords: entrepreneurial finance, banks’ selection and monitoring, credit financing, financial intermediation, Kauffman, KFS, start-up, growth, survival

JEL Classification: G21, G32, J71, L11, M13

Suggested Citation

Cole, Rebel A. and Sokolyk, Tatyana, Debt Financing, Survival, and Growth of Start-Up Firms (October 31, 2017). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2506800 or http://dx.doi.org/10.2139/ssrn.2506800

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Tatyana Sokolyk

Brock University - Department of Finance, Operations & Information Systems ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

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