Beg, Borrow, and Deal? Entrepreneurs’ Choice of Financing and New Firm Innovation

33 Pages Posted: 23 Mar 2011

Date Written: March 15, 2011

Abstract

Entrepreneurs rely on a spectrum of financing options for new companies. I analyze two key aspects: the role of debt and bank loans in the early financing of new firms and the relationship between financing choice and subsequent innovation trajectory. I use microdata in the confidential Kauffman Firm Survey (KFS) dataset. The results suggest bank loans play a role in early stage financing in firms across a spectrum of high-technology industries. Second, conditional on the initial financing mix I use a two-stage analysis to probe the relationship between financing and innovation. In a novel strategy, I exploit the role of entrepreneurial optimism to discern the relationship between debt financing and innovation outcomes, conditional on the endogenous choice of financing.

Suggested Citation

Winston Smith, Sheryl, Beg, Borrow, and Deal? Entrepreneurs’ Choice of Financing and New Firm Innovation (March 15, 2011). Available at SSRN: https://ssrn.com/abstract=1787759 or http://dx.doi.org/10.2139/ssrn.1787759

Sheryl Winston Smith (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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