Set-up Costs and the Financing of Young Firms

Guillaume Vuillemey, Francois Derrien () and Mésonnier, Jean-Stéphane
Authors registered in the RePEc Author Service: Jean-Stéphane Mésonnier

No 14512, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that set-up costs are a key determinant of the capital structure of young firms. Theoretically, when firms face high set-up costs, they can only be established by lengthening debt maturity. Empirically, we use a large sample of French firms to show that young firms have a significantly higher leverage and issue longer-maturity debt than seasoned companies. As predicted by the model, these patterns are stronger in high set-up cost industries and for firms with lower profitability. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, young firms in high set-up cost industries grow significantly less.

Keywords: Young firms; Set-up costs; Leverage; Debt maturity; Capital structure; Financial frictions (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-bec
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Working Paper: Set-up Costs and the Financing of Young Firms (2020)
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