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The Financing Dynamics of Newly Founded Firms

46 Pages Posted: 7 Nov 2016  

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 1, 2016

Abstract

Little evidence exists on the financing decisions of newly founded firms or on the financing dynamics of these firms over their life cycle. We aim to help filling this gap by investigating the financing dynamics of 2,456 French manufacturing firms founded between 2004 and 2006 through their legally required and reported financial statements. Because we observe significant heterogeneity in the financing decision in the firms' founding year, we focus on analyzing whether these differences widen, persist, or converge by using different convergence concepts. We identify a persistence-cum-convergence pattern. We find the existence of ß-convergence (implying that e.g. firms with lower initial levels of debt accumulate more debt over time) but not of σ-convergence (i.e. we observe an increase in the cross-sectional dispersion of the financing structure). We also show that the dynamics of financing matter for the growth path of the firms.

Keywords: financing decisions, life-cycle, firm growth, newly founded firms

JEL Classification: D92, G32

Suggested Citation

Hirsch, Julia and Walz, Uwe, The Financing Dynamics of Newly Founded Firms (November 1, 2016). SAFE Working Paper No. 153. Available at SSRN: https://ssrn.com/abstract=2865558 or http://dx.doi.org/10.2139/ssrn.2865558

Julia Hirsch

Universidad Autónoma de Querétaro ( email )

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

Uwe Walz (Contact Author)

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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