Entrepreneurial finance and the survival of equity-funded firms in crisis periods: the case of COVID-19

Marek Kacer (), Nicholas Wilson, Sana Zouari () and Marc Cowling
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Marek Kacer: The University of Leeds
Sana Zouari: The University of Leeds

Small Business Economics, 2025, vol. 65, issue 2, No 7, 837-870

Abstract: Abstract This study investigates the resilience of 13,786 UK entrepreneurial firms that received equity financing before COVID-19, with 653 becoming insolvent and 6254 securing guaranteed loans during the pandemic. Utilising the resource-based view (RBV) and signalling theories, we hypothesise that equity-backed firms have sufficient resources to withstand crises, varying by investor type and involvement. We compare the bankruptcy risk of these firms during COVID-19 to the pre-COVID period, considering investor type, deal history and financial and non-financial factors. Results show similar insolvency rates during COVID-19 compared to pre-COVID, but firms backed by active investors are less likely to become insolvent during crises. We examine the characteristics of loan recipients, financing combinations and insolvency risk, finding that companies using COVID loans were generally more prone to insolvency, except those backed by active investor types. Our findings offer insights into the role of equity financing across various investor types in venture survival during crises, with policy implications.

Keywords: COVID-19; Entrepreneurial firms; Bankruptcy; Government interventions; Equity investors; Active investors (search for similar items in EconPapers)
JEL-codes: G33 H81 L2 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11187-025-01009-2

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