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The financial structure of startup firms: the role of assets, information, and entrepreneur characteristics

Author

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  • Paroma Sanyal
  • Catherine L. Mann

Abstract

Using the Kauffman Firm Survey, we examine how characteristics of a startup's assets, information about the startup, and entrepreneur attributes relate to financial structure at inception. Startups with more physical assets or those where the entrepreneurs have other similar businesses are more likely to use external debt in the financial structure since these assets have a high liquidation value. Startups with human capital embodied in the entrepreneur or intellectual property assets have a lower probability of using debt, consistent with the higher asset specificity and lower collateral value of these assets. Startups characterized as small, unincorporated, solo, first-time, or home-office-based are more likely to be financed by self, family and friends, and importantly through credit cards, as these have both highly specific assets and information opacity. More educated founders and non-African American founders are more likely to be financed by external sources. Controlling for other attributes of the startup, the financial structure of women-owned startups does not differ from that of other startups. Hi-tech startups' financial structure differs significantly from that of startups in other business sectors.

Suggested Citation

  • Paroma Sanyal & Catherine L. Mann, 2010. "The financial structure of startup firms: the role of assets, information, and entrepreneur characteristics," Working Papers 10-17, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:10-17
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    References listed on IDEAS

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    1. Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1253-1270, September.
    2. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Cesar Tamayo, . "Bankruptcy Choice with Endogenous Financial Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    2. Stefanescu, Răzvan & Dumitriu, Ramona, 2016. "Planificarea financiarǎ pentru decizii asupra antreprenoriatului - Partea întâi
      [Financial planning for decisions on entrepreneurship, Part I]
      ," MPRA Paper 74829, University Library of Munich, Germany, revised 30 Oct 2016.

    More about this item

    Keywords

    Small business - Finance;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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