A Dynamic View on External Financing Choices of Growth Oriented Ventures

41 Pages Posted: 4 Mar 2005

See all articles by Katleen Baeyens

Katleen Baeyens

Ghent University - Department of Accountancy and Corporate Finance

Sophie Manigart

Vlerick Business School; Ghent University

Date Written: February 2005

Abstract

A critical question that growth oriented companies face is whether to raise new funding under the form of debt or equity from new or existing shareholders. We study the 345 new funding issues of a sample of 191 early stage growth oriented start-ups. We show that bank debt is available to firms with low demand for money, with low levels of risk and low levels of information asymmetries. When firms' debt capacity is exhausted, they are financed with equity, hinting that equity investors are investors of last resort. Funding is provided by new equity investors rather than by existing shareholders in only 30% of the equity issues. New shareholders invest when large amounts of funding are required and when risk and information asymmetries are very high. New investors thus provide risk sharing opportunities and skills to monitor and thereby reduce information asymmetries. Existing investors are sole investors for intermediate levels of risk and information asymmetries.

Keywords: Financing choice, private equity, bank debt

JEL Classification: G32

Suggested Citation

Baeyens, Katleen and Manigart, Sophie, A Dynamic View on External Financing Choices of Growth Oriented Ventures (February 2005). Available at SSRN: https://ssrn.com/abstract=676033 or http://dx.doi.org/10.2139/ssrn.676033

Katleen Baeyens (Contact Author)

Ghent University - Department of Accountancy and Corporate Finance ( email )

Bedrijfsfinanciering (RUG)
Kuiperskaai 55 E
Ghent, B-9000
Belgium

Sophie Manigart

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

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