Set-Up Costs and the Financing of Young Firms

François Derrien (), Jean-Stéphane Mésonnier () and Guillaume Vuillemey ()
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François Derrien: HEC Paris - Ecole des Hautes Etudes Commerciales
Jean-Stéphane Mésonnier: Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique
Guillaume Vuillemey: HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research

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Abstract: Firm births are key drivers of employment growth, productivity gains, and "creative destruction". We show that set-up costs create sizable financial constraints for new firms. When firms face high set-up costs, they can only be established by leveraging up and lengthening debt maturity. We empirically confirm these predictions in a large sample of young French firms. Leverage is higher and debt maturity is longer in high set-up cost industries. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, there is relatively lower firm creation in high set-up cost manufacturing industries.

Date: 2025-01-17
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05156025v1
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Published in Management Science, inPress

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