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Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises

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Author Info
Zsuzsanna Fluck
Douglas Holtz-Eakin
Harvey S. Rosen

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Abstract

Using data from the Wisconsin Entrepreneurial Climate Study, we study the sources of firms' finance during the very early stages of their lives. Our focus is the evolution of the mix of financial capital from 'insiders' and 'outsiders' as firms age. We find that at the beginning of firms' life cycles, the proportion of funds form internal sources increases with age, while the proportion from banks, venture capitalists, and private investors declines. There is also evidence that these patterns eventually reverse themselves, with the proportion of insider finance ultimately declining and the proportion of outsider finance increasing with age. We argue that these findings are consistent with elements of both reputation-based and monopoly-lender theories of firm finance.

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Publisher Info
Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-038.

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Date of creation: Feb 1998
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Handle: RePEc:fth:nystfi:98-038

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Web page: http://w4.stern.nyu.edu/finance/
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  1. Rodrigo Canales & Ramana Nanda, 2008. "Bank Structure and the Terms of Lending to Small Businesses," Harvard Business School Working Papers 08-101, Harvard Business School. [Downloadable!]
  2. Ramana Nanda, 2008. "Entrepreneurship and the Discipline of External Finance," Harvard Business School Working Papers 08-047, Harvard Business School. [Downloadable!]
  3. Sophie Manigart & Katleen Baeyens & Ilse Verschueren, 2002. "Financing and investment interdependencies in unquoted Belgian companies: the role of venture capital," Vlerick Leuven Gent Management School Working Paper Series 2002-16, Vlerick Leuven Gent Management School. [Downloadable!]
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  4. Diana Marina Del COlle, & Paolo Finaldi Russo & Andrea Generale, 2006. "The Causes and Consequences of Venture Capital Financing. An Analysis based on a Sample of Italian Firms," Temi di discussione (Economic working papers) 584, Bank of Italy, Economic Research Department. [Downloadable!]
  5. Zsuzsanna Fluck, 1999. "Contingent Control Rights and Managerial Incentives: The Design of Long-term Debt," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-070, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  6. William Kerr & Ramana Nanda, 2006. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship," Harvard Business School Working Papers 07-033, Harvard Business School, revised Oct 2008. [Downloadable!]
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  7. George Haynes & Charles Ou, 2003. "Uses of Equity Capital by Small Firms—Findings from the Surveys of Small Business Finances (for 1993 & 1998)," The Office of Advocacy Small Business Working Papers 03co, U.S. Small Business Administration, Office of Advocacy. [Downloadable!]
  8. Ant Bozkaya & Bruno Van Pottelsberghe, 2004. "Who Funds Technology-Based Small Firms? Evidence from Belgium," Working Papers CEB 04-027.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
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  9. Ant Bozkaya & Astrid Romain & Bruno Van Pottelsberghe, 2003. "Surveying Technology-Based Small Firms: A perspective from Belgium," Working Papers CEB 04-020.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
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