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Long-Term Finance and Entrepreneurship

Florian Leon

CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg

Abstract: This paper investigates whether long-term finance affects the firm entry across the world. We construct a new database on short-term and long-term credit provided by commercial banks to the private sector in 85 countries over the period 1995-2014. We then analyze whether dif- ferences in entrepreneurship are correlated with the provision of short-term and long-term bank credit. Data on entrepreneurship are extracted from two frequently used databases: the Global Entrepreneurship Monitoring dataset and Entrepreneurship Database, each of which captures different aspects of firm creation. Econometric results indicate that long-term credit does not stimulate the firm entry. On the contrary, we find that short-term credit exerts a positive im- pact at each stage of firm creation from activity birth to registration. Our findings are robust to a battery of sensitivity tests, including additional control variables, alternative dependent variables, alternative sample, and changes in econometric specification. Our findings suggest that better provision of short-term credit allows entrepreneurs to apply for a formal loan instead of relying exclusively on informal loans or internal funds, contrary to long-term loans.

Keywords: Long-term finance; banks; entrepreneurship; credit constraints (search for similar items in EconPapers)
JEL-codes: G21 L26 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-ent
Date: 2018
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