Working Paper: NBER ID: w16272
Authors: Alicia M. Robb; David T. Robinson
Abstract: This paper investigates the capital structure choices that firms make in their initial year of operation, using restricted-access data from the Kauffman Firm Survey. Contrary to many accounts of startup activity, the firms in our data rely heavily on external debt sources such as bank financing, and less extensively on friends and family-based funding sources. This fact is robust to numerous controls for credit quality, industry, and business owner characteristics. The heavy reliance on external debt underscores the importance of well functioning credit markets for the success of nascent business activity.
Keywords: Capital Structure; Entrepreneurial Finance; Startup Financing
JEL Codes: G21; G24; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Formal credit access (G21) | Capital structure choices of nascent firms (D25) |
| High housing supply elasticity (R31) | Reliance on bank financing (G21) |
| Capital structure tilted towards formal credit channels (G32) | Higher likelihoods of success (C52) |
| Credit scores (G51) | Access to larger amounts of financial capital (O16) |
| Access to outside equity sources (O36) | Capital structure remains in the form of outside debt (G32) |
| Importance of trade credit (F10) | Less than half as much trade credit as outside debt (F34) |