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

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  • Nancy Huyghebaert
  • Linda M. Van de Gucht
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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." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by European Financial Management Association in its journal European Financial Management.

    Volume (Year): 13 (2007)
    Issue (Month): 1 ()
    Pages: 101-133

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    Handle: RePEc:bla:eufman:v:13:y:2007:i:1:p:101-133

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    Cited by:
    1. Alessandro Fedele & Andrea Mantovani, 2010. "The Importance of Being Consulted," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 231-245, November.
    2. Astrid K. Chludek, 2011. "A note on the price of trade credit," Managerial Finance, Emerald Group Publishing, vol. 37(6), pages 565-574, June.
    3. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2013. "The trade credit channel revisited: evidence from micro data of Japanese small firms," Small Business Economics, Springer, vol. 40(1), pages 101-118, January.
    4. Tobias Stucki, 2009. "How Long Do External Capital Constraints Matter?," KOF Working papers 09-241, KOF Swiss Economic Institute, ETH Zurich.

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