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Financing Decisions along a Firm’s Life‐cycle: Debt as a Commitment Device
Author(s) -
Hirsch Julia,
Walz Uwe
Publication year - 2011
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2011.00618.x
Subject(s) - equity financing , debt financing , external financing , equity (law) , debt , finance , internal financing , empirical research , risk financing , business , empirical evidence , economics , philosophy , epistemology , political science , financial risk management , law , risk management
We analyse the life‐cycle patterns of a firm’s financing decisions and their interaction with future growth and development decisions. We derive different financing sequences which we link to existing empirical research as well as derive new testable hypotheses regarding differences in firms’ financing decisions to project, firm, market and country characteristics. We provide a rationale for the importance of (external) start‐up debt financing as observed in recent empirical studies. Furthermore, we argue that equity financing at both development stages is more likely for closely‐held firms and in countries in which entrepreneurs face high stigmatisation costs.