Set-up Costs and the Financing of Young Firms

Francois Derrien (), M sonnier Jean-St Phane and Vuillemey Guillaume
Authors registered in the RePEc Author Service: Jean-Stéphane Mésonnier

Working papers from Banque de France

Abstract: We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by leveraging up and lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, young firms in high set-up cost industries grow significantly less.

Keywords: Young firms; capital structure; set-up costs; leverage; debt maturity; financial frictions. (search for similar items in EconPapers)
JEL-codes: D21 D22 D25 G32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020
New Economics Papers: this item is included in nep-cfn and nep-ore
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Working Paper: Set-up Costs and the Financing of Young Firms (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:792

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