The debt-equity financing decisions of U.S. startup firms

We examine the debt-equity decisions of startup firms using the Kauffman Firm Survey, the largest database of U.S. startups launched in 2004. To control for sample selection bias and the correlation among financing decisions, we employ a Bivariate Probit-Tobit model. Our results show that several fi...

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Bibliographic Details
Published in:Journal of economics and finance 2016, Vol.40 (1), p.105-126
Main Authors: Coleman, Susan, Cotei, Carmen, Farhat, Joseph
Format: Article
Language:English
Subjects:
Bankruptcy
Capital structure
Costs
Debt financing
Decision analysis
Economics
Economics and Finance
Employment
Entrepreneurial finance
Equity financing
Finance
Macroeconomics/Monetary Economics//Financial Economics
Small business
Startups
Studies
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Summary:We examine the debt-equity decisions of startup firms using the Kauffman Firm Survey, the largest database of U.S. startups launched in 2004. To control for sample selection bias and the correlation among financing decisions, we employ a Bivariate Probit-Tobit model. Our results show that several firm characteristics such as growth prospects, firm size, tangible assets, and selling products, as well as owner characteristics such as net worth, experience, education and ethnicity explain the debt-equity decisions in the startup year. In addition, for firms that use debt, we document traits that explain the use of a particular type of business versus personal debt. Larger firms use more business debt, whereas home-based and growth firms use more personal sources of debt. Immigrants, owners who lack work experience and those who invest more time in the business tend to rely more on personal sources of debt.
ISSN:1055-0925
1938-9744
DOI:10.1007/s12197-014-9293-3