IDEAS home Printed from https://ideas.repec.org/a/taf/indinn/v11y2004i3p225-248.html
   My bibliography  Save this article

The Determinants of Debt and (Private) Equity Financing: The Case of Young, Innovative SMEs from Germany

Author

Listed:
  • Dorothea Schafer
  • Axel Werwatz
  • Volker Zimmermann

Abstract

Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. Conversely, authors who focus explicitly on start-up finance predict that entrepreneurs are the more likely to seek equity-like venture capital contracts, the more risky their projects are. Our paper is an initial step towards resolving this puzzle empirically. We present microeconometric evidence on the determinants of debt and equity financing in young and innovative SMEs. We pay special attention to the role of risk for the choice of the method of financing. Since risk is not directly observable we use different indicators for financial and project risk. It turns out that our data generally confirms the hypothesis that the probability that a young high-tech firm receives equity financing is an increasing function of the financial risk. With regard to the intrinsic project risk, our results are less conclusive, as some of our indicators of a risky project are found to have a negative effect on the likelihood to be financed by private equity.

Suggested Citation

  • Dorothea Schafer & Axel Werwatz & Volker Zimmermann, 2004. "The Determinants of Debt and (Private) Equity Financing: The Case of Young, Innovative SMEs from Germany," Industry and Innovation, Taylor & Francis Journals, vol. 11(3), pages 225-248.
  • Handle: RePEc:taf:indinn:v:11:y:2004:i:3:p:225-248
    DOI: 10.1080/1366271042000265393
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/1366271042000265393
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eleonora Bartoloni, 2013. "Capital structure and innovation: causality and determinants," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(1), pages 111-151, February.
    2. Alfonso Aranda-Usón & Pilar Portillo-Tarragona & Luz María Marín-Vinuesa & Sabina Scarpellini, 2019. "Financial Resources for the Circular Economy: A Perspective from Businesses," Sustainability, MDPI, Open Access Journal, vol. 11(3), pages 1-23, February.
    3. Mueller, Elisabeth & Zimmermann, Volker, 2006. "The Importance of Equity Finance for R&D Activity: Are There Differences Between Young and OldCompanies?," ZEW Discussion Papers 06-014, ZEW - Leibniz Centre for European Economic Research.
    4. Dorothea Schäfer & Andreas Stephan & Jenniffer Solórzano Mosquera, 2017. "Family ownership: does it matter for funding and success of corporate innovations?," Small Business Economics, Springer, vol. 48(4), pages 931-951, April.
    5. Giraudo, Emanuele & Giudici, Giancarlo & Grilli, Luca, 2019. "Entrepreneurship policy and the financing of young innovative companies: Evidence from the Italian Startup Act," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    6. Stephen Pavelin & Lynda Porter, 2008. "The Corporate Social Performance Content of Innovation in the U.K," Journal of Business Ethics, Springer, vol. 80(4), pages 711-725, July.
    7. Elisabeth Müller & Volker Zimmermann, 2009. "The importance of equity finance for R&D activity," Small Business Economics, Springer, vol. 33(3), pages 303-318, October.
    8. Stefano Colombo & Luca Grilli, 2017. "Should I stay or should I go? Founder’s decision to leave an entrepreneurial venture during an industrial crisis," Industry and Innovation, Taylor & Francis Journals, vol. 24(2), pages 97-121, February.
    9. Shuanglian Chen & Zhehao Huang & Benjamin M. Drakeford & Pierre Failler, 2019. "Lending Interest Rate, Loaning Scale, and Government Subsidy Scale in Green Innovation," Energies, MDPI, Open Access Journal, vol. 12(23), pages 1-22, November.

    More about this item

    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:taf:indinn:v:11:y:2004:i:3:p:225-248. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CIAI20 .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.