IDEAS home Printed from https://ideas.repec.org/a/pep/journl/v3y1993i1p17-36.html
   My bibliography  Save this article

Financing the Small Firm Start-Up: Determinants of Debt Use

Author

Listed:
  • Frederick C. Scherr

    (West Virginia University)

  • Timothy F. Sugrue

    (George Mason University)

  • Janice B. Ward

    (West Virginia University)

Abstract

While academic research concerning capital structure of large corporations has been abundant in the finance literature, studies of small firms have been somewhat less common, and investigation of capital structure at origin (start-up) has been virtually nil. In this paper we present empirical evidence concerning the start-up capital structures of small firms. We base this investigation upon characteristics of both owner and firm. We find the percent of the owner's income expected to be derived from the business to be positively associated with debt use and the owner's age to be negatively associated with debt use. We find that more debt is obtained if the business owner is married and less if he or she is black. Similarly, more debt is prevalent among start-up firms in transportation and utilities than those in other industries. When debt obtained from other than financial institutions is considered, factors such as gender, experience, education, and expected firm size also play a role in the structure of start-up capital.

Suggested Citation

  • Frederick C. Scherr & Timothy F. Sugrue & Janice B. Ward, 1993. "Financing the Small Firm Start-Up: Determinants of Debt Use," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 3(1), pages 17-36, Fall.
  • Handle: RePEc:pep:journl:v:3:y:1993:i:1:p:17-36
    as

    Download full text from publisher

    File URL: http://jefsite.org/RePEc/pep/journl/jef-1993-03-1-b-scherr.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Leeth, John D. & Scott, Jonathan A., 1989. "The Incidence of Secured Debt: Evidence from the Small Business Community," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 379-394, September.
    2. Timothy Bates, 1989. "The changing nature of minority business: A comparative analysis of asian, nonminority, and black-owned businesses," The Review of Black Political Economy, Springer;National Economic Association, vol. 18(2), pages 25-42, September.
    3. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-559, November.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    6. Sugrue, Timothy F & Scherr, Fredrick C, 1989. "An Empirical Test of Ross's Cash Flow Beta Theory of Capital Structur e," The Financial Review, Eastern Finance Association, vol. 24(3), pages 355-370, August.
    7. Hausman, Jerry A. & Lo, Andrew W. & MacKinlay, A. Craig, 1992. "An ordered probit analysis of transaction stock prices," Journal of Financial Economics, Elsevier, vol. 31(3), pages 319-379, June.
    8. Gavin Chen & John Cole, 1988. "The myths, facts, and theories of ethnic, small-scale enterprise financing," The Review of Black Political Economy, Springer;National Economic Association, vol. 16(4), pages 111-123, March.
    9. 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 808-827, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:bla:scotjp:v:49:y:2002:i:2:p:162-95 is not listed on IDEAS
    2. David de Meza, 2002. "Overlending?," Economic Journal, Royal Economic Society, vol. 112(477), pages 17-31, February.
    3. De Maeseneire, Wouter & Claeys, Tine, 2012. "SMEs, foreign direct investment and financial constraints: The case of Belgium," International Business Review, Elsevier, vol. 21(3), pages 408-424.
    4. Ana Venâncio & João Jorge, 2022. "The role of accelerator programmes on the capital structure of start-ups," Small Business Economics, Springer, vol. 59(3), pages 1143-1167, October.
    5. Niklas Elert, 2014. "What determines entry? Evidence from Sweden," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 55-92, August.
    6. Bruder, Jana & Neuberger, Doris & Räthke-Döppner, Solvig, 2008. "Financial constraints of ethnic entrepreneurship: Evidence from Germany," Thuenen-Series of Applied Economic Theory 84, University of Rostock, Institute of Economics.
    7. Lofstrom, Magnus & Wang, Chunbei, 2006. "Hispanic Self-Employment: A Dynamic Analysis of Business Ownership," IZA Discussion Papers 2101, Institute of Labor Economics (IZA).
    8. repec:lic:licosd:11602 is not listed on IDEAS
    9. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    10. Sasan Bakhtiari & Robert Breunig & Lisa Magnani & Jacquelyn Zhang, 2020. "Financial Constraints and Small and Medium Enterprises: A Review," The Economic Record, The Economic Society of Australia, vol. 96(315), pages 506-523, December.
    11. Simon Parker & Mirjam van Praag, 2004. "Schooling, Capital Constraints and Entrepreneurial Performance," Tinbergen Institute Discussion Papers 04-106/3, Tinbergen Institute, revised 07 Mar 2005.
    12. Jean Bonnet & Sylvie Cieply & Marcus Dejardin, 2016. "Credit rationing or overlending? An exploration into financing imperfection," Applied Economics, Taylor & Francis Journals, vol. 48(57), pages 5563-5580, December.
    13. Robert W. Fairlie, 2000. "Earnings Growth among Young Less-Educated Business Owners," JCPR Working Papers 207, Northwestern University/University of Chicago Joint Center for Poverty Research.
    14. Y Georgellis & J G Sessions & N Tsitsianis, 2005. "Self-Employment Longitudinal Dynamics: A Review of the Literature," Economic Issues Journal Articles, Economic Issues, vol. 10(2), pages 51-84, September.
    15. Magnus Lofstrom, 2013. "Does self-employment increase the economic well-being of low-skilled workers?," Small Business Economics, Springer, vol. 40(4), pages 933-952, May.
    16. Robert W. Fairlie & Alicia M. Robb, 2007. "Why Are Black-Owned Businesses Less Successful than White-Owned Businesses? The Role of Families, Inheritances, and Business Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 25(2), pages 289-323.
    17. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
    18. Colombo, Massimo G. & Grilli, Luca, 2005. "Founders' human capital and the growth of new technology-based firms: A competence-based view," Research Policy, Elsevier, vol. 34(6), pages 795-816, August.
    19. Magnus Lofstrom & Chunbei Wang, 2007. "Mexican-Hispanic Self-Employment Entry: The Role of Business Start-Up Constraints," The ANNALS of the American Academy of Political and Social Science, , vol. 613(1), pages 32-46, September.
    20. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
    21. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    22. Enrico Santarelli & Marco Vivarelli, 2007. "Entrepreneurship and the process of firms’ entry, survival and growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 16(3), pages 455-488, June.

    More about this item

    Keywords

    Financing ; Small Firm; Small Business; Startup; Debt; Lending;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pep:journl:v:3:y:1993:i:1:p:17-36. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Craig Everett (email available below). General contact details of provider: https://edirc.repec.org/data/bapepus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.