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Set-Up Costs and the Financing of Young Firms

Author

Listed:
  • François Derrien

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Jean-Stéphane Mésonnier

    (Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Guillaume Vuillemey

    (HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research)

Abstract

Firm births are key drivers of employment growth, productivity gains, and "creative destruction". We show that set-up costs create sizable financial constraints for new firms. When firms face high set-up costs, they can only be established by leveraging up and lengthening debt maturity. We empirically confirm these predictions in a large sample of young French firms. Leverage is higher and debt maturity is longer in high set-up cost industries. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, there is relatively lower firm creation in high set-up cost manufacturing industries.

Suggested Citation

  • François Derrien & Jean-Stéphane Mésonnier & Guillaume Vuillemey, 2025. "Set-Up Costs and the Financing of Young Firms," SciencePo Working papers Main hal-05156025, HAL.
    • Handle: RePEc:hal:spmain:hal-05156025
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05156025v1
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