Contract Enforcement and Young Firm Capital Structure: A Global Perspective

Gonzalo Basante Pereira and Ina Simonovska

No 12596, CESifo Working Paper Series from CESifo

Abstract: We develop a framework to measure the severity of financial constraints for young firms across countries. Using ORBIS balance-sheet data for 23 economies, we show that short-term leverage rises while long-term leverage falls early in firms' life cycles, with this pattern persisting longer where contract enforcement is weaker. We build a model of optimal financing under limited enforcement with endogenous debt maturity and blueprint capacity that matches these patterns and enables structural measurement of financial constraints. The framework decomposes the funding gap into within-firm borrowing constraints that ease with repayment history and a scale distortion identifiable through cross-country comparisons.

Keywords: contract enforcement; capital structure; debt maturity; young firms; cross-country financial frictions (search for similar items in EconPapers)
JEL-codes: E22 F34 F36 O16 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-bec and nep-ent
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