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Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises

  • Zsuzsanna Fluck
  • Douglas Holtz-Eakin
  • Harvey S. Rosen

Using data from the Wisconsin Entrepreneurial Climate Study, we study the sources of firms' finance during the very early stages of their lives. Our focus is the evolution of the mix of financial capital from 'insiders' and 'outsiders' as firms age. We find that at the beginning of firms' life cycles, the proportion of funds form internal sources increases with age, while the proportion from banks, venture capitalists, and private investors declines. There is also evidence that these patterns eventually reverse themselves, with the proportion of insider finance ultimately declining and the proportion of outsider finance increasing with age. We argue that these findings are consistent with elements of both reputation-based and monopoly-lender theories of firm finance.

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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-038.

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Date of creation: Feb 1998
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Handle: RePEc:fth:nystfi:98-038
Contact details of provider: Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/

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