Outside or inside the firm? The impact of debt financing on the exit routes of start-up firms

Yuji Honjo, Yunosuke Iwaki and Masatoshi Kato

No E-2023-02, TDB-CAREE Discussion Paper Series from Teikoku Databank Center for Advanced Empirical Research on Enterprise and Economy, Graduate School of Economics, Hitotsubashi University

Abstract: This study explores the impact of initial debt financing on the survival of start-up firms by identifying three types of exit routes: bankruptcy, voluntary liquidation, and merger. Using a discrete-time duration model for Japanese start-up firms, we examine how debt financing affects the time from founding to exit. We find that firms that initially rely on debt financing from outside creditors are more likely to go bankrupt and that long-term debt, rather than short-term debt, is positively associated with the time to exit due to bankruptcy. In contrast, such firms are less likely to liquidate voluntarily, and long-term debt is negatively associated with the time to voluntary liquidation. Moreover, they are less likely to exit via merger, and long-term debt is negatively associated with the time to exit via merger. Furthermore, unlike voluntary liquidation and merger, macroeconomic conditions influence the likelihood of bankruptcy.

Keywords: Bankruptcy; Debt financing; Long-term debt; Merger; Outside creditors; Start-up; Voluntary liquidation (search for similar items in EconPapers)
JEL-codes: G33 G34 M13 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2024-01
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg, nep-ind and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:hit:tdbcdp:e-2023-02

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