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The Capital Structure Decisions of New Firms

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  • Alicia M. Robb
  • David T. Robinson

Abstract

This paper investigates the capital structure choices that firms make in their initial year of operation, using restricted-access data from the Kauffman Firm Survey. Contrary to many accounts of startup activity, the firms in our data rely heavily on external debt sources such as bank financing, and less extensively on friends and family-based funding sources. This fact is robust to numerous controls for credit quality, industry, and business owner characteristics. The heavy reliance on external debt underscores the importance of well functioning credit markets for the success of nascent business activity.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16272.

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Date of creation: Aug 2010
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Publication status: published as Alicia M. Robb & David T. Robinson, 2014. "The Capital Structure Decisions of New Firms," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 153-179, January.
Handle: RePEc:nbr:nberwo:16272

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  1. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure," Journal of Finance, American Finance Association, American Finance Association, vol. 63(4), pages 1575-1608, 08.
  2. Manju Puri & David Robinson, 2005. "Optimism and Economic Choice," NBER Working Papers 11361, National Bureau of Economic Research, Inc.
  3. Fairlie, Robert W. & Krashinsky, Harry A., 2006. "Liquidity Constraints, Household Wealth, and Entrepreneurship Revisited," IZA Discussion Papers 2201, Institute for the Study of Labor (IZA).
  4. Andy Cosh & Douglas Cumming & Alan Hughes, 2009. "Outside Enterpreneurial Capital," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(540), pages 1494-1533, October.
  5. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 319-347, April.
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Cited by:
  1. Jim Wilkinson & Jon Christensson, 2011. "Can the supply of small business loans be increased?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.
  2. Cerqueiro, G.M. & Penas, M.F., 2011. "How Does Personal Bankruptcy Law Affect Start-ups?," Discussion Paper, Tilburg University, Center for Economic Research 2011-106, Tilburg University, Center for Economic Research.
  3. Hui Chen & Jianjun Miao & Neng Wang, . "Entrepreneurial Finance and Non-diversifiable Risk," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics wp2009-018, Boston University - Department of Economics.
  4. Julia Hirsch & Uwe Walz, 2009. "Financing Decisions Along a Firm’s Life Cycle: Debt as a Commitment Device," Working Papers, Universidad Iberoamericana, Department of Economics 0409, Universidad Iberoamericana, Department of Economics.
  5. Bjuggren, Per-Olof & Elmoznino Laufer, Michel, 2014. "Bank Financing of Start-ups – Findings from a survey," Ratio Working Papers, The Ratio Institute 232, The Ratio Institute.
  6. Da Rin, M. & Hellmann, T. & Puri, M.L., 2011. "A Survey of Venture Capital Research," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2011-044, Tilburg University, Tilburg Law and Economic Center.
  7. Brown, Martin & Degryse, Hans & Höwer, Daniel & Penas, María Fabiana, 2012. "How do banks screen innovative firms? Evidence from start-up panel data," ZEW Discussion Papers 12-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Rodrigo Canales & Ramana Nanda, 2008. "A Darker Side to Decentralized Banks: Market Power and Credit Rationing in SME Lending," Harvard Business School Working Papers 08-101, Harvard Business School, revised Aug 2011.
  9. Pelger, Ines, 2012. "Male vs. female business owners: Are there differences in investment behavior?," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62016, Verein für Socialpolitik / German Economic Association.

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