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The Capital Structure of Young Firms and the Working Experience of New Entrepreneurs

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  • Enrico Colombatto

    ()

  • Arie Melnik

    ()

Abstract

We use a simple model to analyze the funding stage of new firms and characterize the directional causality between the ir capital structure and the length of prior working experience that entrepreneurs possess. In this light, we test a set of predictions by considering a sample of firms founded by Italian entrepreneurs in the period 1992-2004. We obtain three main results. First, we confirm the evidence presented in the literature, whereby the size of the firm has a significant effect on capital structure. Second, we find that previous working experiences of entrepreneurs in full-time employment (before founding a new firm) have a positive impact on the debt-to-asset ratio of newly founded firms. Third, we show that firms with access to subsidized government debt are able to increase the ir share of debt in total liabilities, even when the size of the subsidy is small.

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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 08-2008.

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Length: 23 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:icr:wpicer:08-2008

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