Do initial financial conditions determine the exit routes of start-up firms?

Yuji Honjo () and Masatoshi Kato
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Yuji Honjo: Chuo University

Journal of Evolutionary Economics, 2019, vol. 29, issue 3, No 12, 1119-1147

Abstract: Abstract This study investigates the impact of initial financial conditions on the post-entry performance of firms in a sample of 16,185 Japanese joint-stock companies. We examine whether initial financial conditions, including entry regulations, affect the duration of survival among Japanese start-up firms, distinguishing between failure and merger. We provide evidence that start-up firms that rely more on equity than on debt financing are less likely to fail within a shorter period, although we find little evidence that initial equity size has a significant effect on the time to failure of start-up firms in our sample. Moreover, we find the negative effect of equity financing on the time to failure to be greater for start-up firms founded following the abolition of regulations for minimum capital requirements. Furthermore, the results reveal that start-up firms with larger initial equity capital are more likely to exit through merger, indicating that the effects of initial financial conditions depend on the type of exit route.

Keywords: Equity; Failure; Initial financial conditions; Minimum capital requirements; Merger; Regulation (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 L51 M13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s00191-019-00623-0

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