Debt signaling and outside investors in early stage firms
Mircea Epure () and
Journal of Business Venturing, 2020, vol. 35, issue 2
By imposing a market like governance and directing entrepreneurs towards professional management, debt, and especially business debt, can serve as a reliable signal for outside equity investors. Such signals of firm accountability can alleviate the stringent information asymmetry at the early stages of the firm, and become stronger for bank business debt, in the presence of personal debt, and in high capital industries. Using the Kauffman Firm Survey, we find evidence consistent with our hypotheses. Outside investors can rely on the governance role of debt and its underpinnings such as the bank-firm relationship. We also corroborate that young firms tend to focus on growth rather than profitability.
Keywords: Governance; Entrepreneurship; Financing; Information asymmetry; Debt; Equity (search for similar items in EconPapers)
JEL-codes: G32 M13 M40 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Debt signaling and outside investors in early stage firms (2019)
Working Paper: Debt Signaling and Outside Investors in Early Stage Firms (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:35:y:2020:i:2:s0883902617301775
Access Statistics for this article
Journal of Business Venturing is currently edited by S. Venkataraman
More articles in Journal of Business Venturing from Elsevier
Bibliographic data for series maintained by Haili He ().