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Contract Enforcement and Young Firm Capital Structure: A Global Perspective

Author

Listed:
  • Gonzalo E. Basante Pereira
  • Ina Simonovska

Abstract

We develop a framework to measure the severity of financial constraints for young firms across countries. Using ORBIS balance-sheet data for 23 economies, we show that short-term leverage rises while long-term leverage falls early in firms’ life cycles, with this pattern persisting longer where contract enforcement is weaker. We build a model of optimal financing under limited enforcement with endogenous debt maturity and blueprint capacity that matches these patterns and enables structural measurement of financial constraints. The framework decomposes the funding gap into within-firm borrowing constraints that ease with repayment history and a scale distortion identifiable through cross-country comparisons.

Suggested Citation

  • Gonzalo E. Basante Pereira & Ina Simonovska, 2026. "Contract Enforcement and Young Firm Capital Structure: A Global Perspective," NBER Working Papers 34985, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34985
    Note: CF DEV EFG IFM ITI PR
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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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