Advanced Search
MyIDEAS: Login

Funding Gaps? Access To Bank Loans By High-Tech Start-Ups

Contents:

Author Info

  • Massimo Colombo

    ()

  • Luca Grilli
Registered author(s):

    Abstract

    This paper aims to shed new light on start-up financing of new technology-based firms (NTBFs) and the existence of credit constraints that may negatively affect their activity. For this purpose, we analyze the different sources of start-up financing used by NTBFs and investigate several characteristics that may influence the extent of recourse to bank loans. In the empirical section, we consider a sample composed of 386 Italian NTBFs that operate both in manufacturing and services. We estimate double-censored tobit and bivariate tobit models so as to highlight the determinants of (i) the financial leverage, measured by the ratio of bank debt to total capital, and (ii) the amounts of personal capital and bank loans of firms at start-up, respectively. Our findings support the view that the credit market is imperfect and there exists a financing hierarchy. In fact, only a minority of firms resorts to outside financing, and especially to bank debt. In addition, the level of financial leverage is not random; it increases with an increase of the predicted amount of firms’ total initial capital, while it decreases with variables such as the number of owners and the work experience of founders that are indicative of greater personal wealth available to finance firms’ start-up. Lastly, the size of the bank loans obtained by firms generally is small and it is quite insensitive to demand-side factors that instead determine the amount of personal and total capital, with the notable exception of scale economies in the industry of the start-up. In other words, in accordance with the argument that credit to NTBFs is rationed, the loan supply curve is highly inelastic, even though not perfectly so. Copyright Springer 2007

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1007/s11187-005-4067-0
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Small Business Economics.

    Volume (Year): 29 (2007)
    Issue (Month): 1 (June)
    Pages: 25-46

    as in new window
    Handle: RePEc:kap:sbusec:v:29:y:2007:i:1:p:25-46

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=100338

    Related research

    Keywords: new technology-based firms; start-up financing; bank loans; credit rationing; G32; M13; O30;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Colombo, Massimo G. & Grilli, Luca, 2005. "Start-up size: The role of external financing," Economics Letters, Elsevier, vol. 88(2), pages 243-250, August.
    2. Giudici, Giancarlo & Paleari, Stefano, 2000. " The Provision of Finance to Innovation: A Survey Conducted among Italian Technology-Based Small Firms," Small Business Economics, Springer, vol. 14(1), pages 37-53, February.
    3. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring.
    4. Gorg, Holger & Strobl, Eric & Ruane, Frances, 2000. " Determinants of Firm Start-Up Size: An Application of Quantile Regression for Ireland," Small Business Economics, Springer, vol. 14(3), pages 211-22, May.
    5. Freear, John & Wetzel, William Jr., 1990. "Who bankrolls high-tech entrepreneurs?," Journal of Business Venturing, Elsevier, vol. 5(2), pages 77-89, March.
    6. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
    7. Manigart, Sophie & Struyf, Carol, 1997. " Financing High Technology Startups in Belgium: An Explorative Study," Small Business Economics, Springer, vol. 9(2), pages 125-35, April.
    8. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
    9. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    10. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
    11. David B. Audretsch & Erik E. Lehmann, 2004. "Financing High-Tech Growth: The Role Of Banks And Venture Capitalists," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 56(4), pages 340–357, October.
    12. Paul Westhead & David Storey, 1997. "Financial constraints on the growth of high technology small firms in the United Kingdom," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 197-201.
    13. Caves, Richard E & Khalilzadeh-Shirazi, J & Porter, M E, 1975. "Scale Economies in Statistical Analyses of Market Power," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 133-40, May.
    14. Cassar, Gavin, 2004. "The financing of business start-ups," Journal of Business Venturing, Elsevier, vol. 19(2), pages 261-283, March.
    15. Da Rin, Marco & Nicodano, Giovanna & Sembenelli, Alessandro, 2005. "Public policy and the creation of active venture capital markets," Working Paper Series 0430, European Central Bank.
    16. Mata, Jose, 1996. "Markets, entrepreneurs and the size of new firms," Economics Letters, Elsevier, vol. 52(1), pages 89-94, July.
    17. Xu, Bin, 1998. "A reestimation of the Evans-Jovanovic entrepreneurial choice model," Economics Letters, Elsevier, vol. 58(1), pages 91-95, January.
    18. Enrico Santarelli, 2002. "Is subsidizing entry an optimal policy?," Industrial and Corporate Change, Oxford University Press, vol. 11(1), pages 39-52, February.
    19. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
    20. Colombo, Massimo G. & Delmastro, Marco & Grilli, Luca, 2004. "Entrepreneurs' human capital and the start-up size of new technology-based firms," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1183-1211, November.
    21. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    22. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    23. Mata, Jose & Machado, Jose A. F., 1996. "Firm start-up size: A conditional quantile approach," European Economic Review, Elsevier, vol. 40(6), pages 1305-1323, June.
    24. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
    25. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
    26. Lee, Inmoo & et al, 1996. "The Costs of Raising Capital," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 19(1), pages 59-74, Spring.
    27. Holtz-Eakin, D. & Joulfaian, D. & Rosen, H.S., 1992. "Entrepreneurial Decisions and Liquidity Constraints," Papers 129, Princeton, Department of Economics - Financial Research Center.
    28. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    29. Samuel Kortum & Josh Lerner, 1998. "Does Venture Capital Spur Innovation?," NBER Working Papers 6846, National Bureau of Economic Research, Inc.
    30. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
    31. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
    32. Heron, Randall & Lie, Erik, 2002. "Operating Performance and the Method of Payment in Takeovers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(01), pages 137-155, March.
    33. Andrea Schertler, 2001. "Venture Capital in Europe's Common Market: A Quantitative Description," Kiel Working Papers 1087, Kiel Institute for the World Economy.
    34. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
    35. Colombo, Massimo G. & Delmastro, Marco, 1999. "Some stylized facts on organization and its evolution," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 255-274, November.
    36. Czarnitzki, Dirk, 2002. "Research and development: financial constraints and the role of public funding for small and medium-sized enterprises," ZEW Discussion Papers 02-74, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    37. Allen N. Berger & Gregory F. Udell, 1998. "The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle," Finance and Economics Discussion Series 1998-15, Board of Governors of the Federal Reserve System (U.S.).
    38. repec:fth:wobaco:1083 is not listed on IDEAS
    39. Feldman, Maryann P & Kelley, Maryellen R, 2003. " Leveraging Research and Development: Assessing the Impact of the U.S. Advanced Technology Program," Small Business Economics, Springer, vol. 20(2), pages 153-65, March.
    40. Laura Bottazzi & Marco Da Rin, 2002. "Venture capital in Europe and the financing of innovative companies," Economic Policy, CEPR & CES & MSH, vol. 17(34), pages 229-270, 04.
    41. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
    42. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February.
    43. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    44. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
    45. Bruce D. Meyer, 1990. "Why Are There So Few Black Entrepreneurs?," NBER Working Papers 3537, National Bureau of Economic Research, Inc.
    46. Robert Cressy & Otto Toivanen, 2001. "Is there adverse selection in the credit market?," Venture Capital, Taylor & Francis Journals, vol. 3(3), pages 215-238, July.
    47. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    48. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    49. Kon, Y & Storey, D J, 2003. " A Theory of Discouraged Borrowers," Small Business Economics, Springer, vol. 21(1), pages 37-49, August.
    50. Cabral, Luis, 1995. "Sunk Costs, Firm Size and Firm Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 161-72, June.
    51. Carter, Nancy M. & Gartner, William B. & Reynolds, Paul D., 1996. "Exploring start-up event sequences," Journal of Business Venturing, Elsevier, vol. 11(3), pages 151-166, May.
    52. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    53. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
    54. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    55. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    56. Egeln, Jurgen & Licht, Georg & Steil, Fabian, 1997. " Firm Foundations and the Role of Financial Constraints," Small Business Economics, Springer, vol. 9(2), pages 137-50, April.
    57. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
    58. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
    59. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    60. Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1253-70, September.
    61. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages F54-F72, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Vittoria Cerasi & Alessandro Fedele & Raffaele Miniaci, 2013. "Product market competition and collateralized debt," Working Papers 238, University of Milano-Bicocca, Department of Economics, revised Mar 2013.
    2. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    3. Andrea Bellucci & Ilario Favaretto & Germana Giombini, 2014. "Does Innovation Affect Credit Access? New Empirical Evidence from Italian Small Business Lending," IAW Discussion Papers 104, Institut für Angewandte Wirtschaftsforschung (IAW).
    4. Höwer, Daniel, 2013. "Corporate main bank decision," ZEW Discussion Papers 13-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Fabio Bertoni & Annalisa Croce & Diego D'Adda, 2009. "Venture capital investments and patenting activity of high-tech start-ups: a micro-econometric firm-level analysis," Venture Capital, Taylor & Francis Journals, vol. 12(4), pages 307-326, November.
    6. Massimo Colombo & Annalisa Croce & Samuele Murtinu, 2014. "Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms," Small Business Economics, Springer, vol. 42(2), pages 265-282, February.
    7. Valérie Revest & Sandro Sapio, 2008. "Financing Technology-Based Small Firms in Europe: a review of the empirical evidence," LEM Papers Series 2008/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Nunes, Paulo Maçãs & Serrasqueiro, Zélia & Leitão, João, 2012. "Is there a linear relationship between R&D intensity and growth? Empirical evidence of non-high-tech vs. high-tech SMEs," Research Policy, Elsevier, vol. 41(1), pages 36-53.
    9. Yuji Honjo & Masatoshi Kato & Hiroyuki Okamuro, 2014. "R&D investment of start-up firms: does founders’ human capital matter?," Small Business Economics, Springer, vol. 42(2), pages 207-220, February.
    10. Eleonora Bartoloni, 2013. "Capital structure and innovation: causality and determinants," Empirica, Springer, vol. 40(1), pages 111-151, February.
    11. Bertoni, Fabio & Colombo, Massimo G. & Grilli, Luca, 2011. "Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects," Research Policy, Elsevier, vol. 40(7), pages 1028-1043, September.
    12. Colombo, Massimo G. & Croce, Annalisa & Guerini, Massimiliano, 2013. "The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?," Research Policy, Elsevier, vol. 42(9), pages 1605-1623.
    13. Carole Howorth & Andrea Moro, 2012. "Trustworthiness and interest rates: an empirical study of Italian SMEs," Small Business Economics, Springer, vol. 39(1), pages 161-177, July.
    14. Dina Cunha & Sandra T. Silva & Aurora A.C. Teixeira, 2013. "Are Academic Spin-Offs necessarily New Technology-Based firms?," FEP Working Papers 482, Universidade do Porto, Faculdade de Economia do Porto.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:29:y:2007:i:1:p:25-46. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.