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Determinants of start-up firm external financing worldwide

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  • Nofsinger, John R.
  • Wang, Weicheng
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    Abstract

    The typical new start-up firm acquires external financing in stages through its development. Researchers have frequently examined the later stages of financing; however, they have rarely analyzed the early stages of financing. This study examines the determinants of the initial start-up financing of entrepreneurial firms in 27 countries. There are information asymmetries and moral hazard problems inherent in the funding of an initial start-up firm. Empirical results show that institutional investors rely on the experience of entrepreneurs in managing start-ups and the quality of investor protection to reduce moral hazard. On the other hand, informal investors are also common in initial start-up funding. They tend to be attracted to the type of products in the new firm. In comparison, informal investors are likely to have a social relationship with the entrepreneur, and thus have information about that person's skill and character, which renders entrepreneurial experience less important.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 9 (September)
    Pages: 2282-2294

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:9:p:2282-2294

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: External financing Early stage financing Start-up Entrepreneurial finance Connectedness Social relationships Legal environment;

    References

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    Cited by:
    1. Inci, Eren & Parker, Simon C., 2012. "Financing Entrepreneurship and the Old-Boy Network," IZA Discussion Papers 6288, Institute for the Study of Labor (IZA).
    2. Claudia Álvarez & David Urbano & José Amorós, 2014. "GEM research: achievements and challenges," Small Business Economics, Springer, vol. 42(3), pages 445-465, March.
    3. Charles HARVIE & Narjoko Dionisius & Sothea OUM, 2013. "Small and Medium Enterprises' Access to Finance: Evidence from Selected Asian Economies," Working Papers DP-2013-23, Economic Research Institute for ASEAN and East Asia (ERIA).

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