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We investigate the relationship between debt and equity financing of new ventures and their survival using the Kauffman Foundation's longitudinal data on 4,928 U.S. startups. We find that surviving firms initially rely upon internal debt and equity to fund their ventures, then shift their financing structures to rely more heavily upon external debt. Among companies that survive longest, external debt is used more heavily than external equity. We posit that even though information asymmetry dissipates over time with demonstrated performance, the heavier use of external debt may be related to business owners not wanting to relinquish control over their businesses.
Author(s):
Amy M. Yacus
University of Massachusetts Lowell
United States
Saadet Elif Esposito
University of Massachusetts Lowell
United States
Yi Yang
University of Massachusetts Lowell
United States
