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The role of trust and social commitment in start-up financing

Viviana Fernandez

International Review of Financial Analysis, 2021, vol. 75, issue C

Abstract: Access to finance is a perennial problem for business start-ups. This article advances the extant literature on the determinants of entrepreneurial finance by presenting a comprehensive analysis of the amount needed to start a business, the amount of self-investment and the number of external sources of financing utilized. Based on information from the Global Entrepreneurship Monitor 2015, the empirical analysis shows that the availability of external sources of financing depend primarily on demographics, entrepreneurial experience, business features, e.g., export propensity and growth potential; and, on the phase of economic development. Furthermore, relatively high levels of social trust may increase the likelihood of obtaining external financing. The novelty of the product/service offered, financial barriers and investor/property rights protection in turn may also explain the proportion of self-investment provided to a new business. An analysis of financing options of socially-oriented businesses shows that they are more successful in obtaining financial support from private investors/venture capitalists and governments.

Keywords: Entrepreneurial finance; Social trust; Social entrepreneurship; Gender; Global entrepreneurship monitor (search for similar items in EconPapers)
JEL-codes: L26 M13 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.irfa.2021.101722

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