The financing of young firms. How persistent are borrowing constraints?
AbstractAre investments by new firms constrained by access to financing? If so, are the constraints persistent or do firms overcome their financing problems during the first years of operation? We examine the role of capital constraints by estimating the relation between founders’ initial wealth and firm size during the first years of operation. Similar to previous studies, we find a positive impact of entrepreneurs’ wealth prior to start-up on the start-up size of entrepreneurial firms, but this effect decreases during the first five years of operation. We also document a high degree of economic mobility among entrepreneurial firms during the first years of operation. This is primarily driven by a disproportional increase in debt financing among the smallest firms, indicating that capital constraints for entrepreneurs are transitory.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 707.
Date of creation: Oct 2012
Date of revision:
Entrepreneurship; borrowing constraints; growth;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-BEC-2012-10-20 (Business Economics)
- NEP-ENT-2012-10-20 (Entrepreneurship)
- NEP-HME-2012-10-20 (Heterodox Microeconomics)
- NEP-IFN-2012-10-20 (International Finance)
- NEP-SBM-2012-10-20 (Small Business Management)
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