The Determinants of Financial Structure: New Insights from Business Start-Ups

33 Pages Posted: 8 Jan 2007

See all articles by Nancy Huyghebaert

Nancy Huyghebaert

KU Leuven - Department of Accountancy, Finance and Insurance

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics

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Abstract

Business start-ups lack prior history and reputation, face high failure risk, and have highly concentrated ownership. The resulting information and incentive problems, combined with entrepreneurial private benefits of control, affect initial financing decisions. This paper examines simultaneously the impact of these issues on leverage, debt mix and maturity. We find that start-ups with high adverse selection and risk shifting problems contract less bank debt but compensate with other debt sources. Start-ups in growing industries have lower leverage, but raise more bank debt. Entrepreneurs with large private control benefits contract less but longer term bank loans to lower the default probability.

Suggested Citation

Huyghebaert, Nancy and Van De Gucht, Linda M., The Determinants of Financial Structure: New Insights from Business Start-Ups. European Financial Management, Vol. 13, No. 1, pp. 101-133, January 2007, Available at SSRN: https://ssrn.com/abstract=955556 or http://dx.doi.org/10.1111/j.1468-036X.2006.00287.x

Nancy Huyghebaert (Contact Author)

KU Leuven - Department of Accountancy, Finance and Insurance ( email )

Naamsestraat 69
B-3000 Leuven, 3000
Belgium
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HOME PAGE: http://www.econ.kuleuven.be/eng/fetew/medewerker/Userpage.aspx?PID=524

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics ( email )

Naamsestraat 69
B-3000 Leuven
BELGIUM

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