Financing Decisions Along a Firm's Life-Cycle: Debt as a Commitment Device

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe analyze the life-cycle patterns of a firm's financing decisions and their interaction with future growth and development decisions. The framework derives three different financing sequences (debt-debt, equity-debt, equity-equity financing) which we link to existing empirical research. Furthermore, by adopting a life-cycle approach we are able to go one step beyond existing empirical research and derive testable hypotheses with respect to differences in the financing decisions of firms due to project, firm, market and country characteristics as well as the impact of a possible lack of start-up financing possibilities on firm dynamics.

Young family firms: Financing decisions and the willingness to dilute control

“…The broad literature on capital structure includes only a few papers explicitly analyzing the impact of life cycle on a firm's financing decisions (Hirsch and Walz, 2011), and most of them differentiate only between growth and maturity stages. For instance, Bulan and Yan (2009) find that mature businesses have higher leverage since they prefer debt to equity and are able to borrow more easily and at a lower cost.…”

The financing dynamics of newly founded firms

“…We contrast two opposing views about the financing dynamics of firms. The first strand of literature builds on the idea that initial financing patterns are crucial in some industries because these conditions determine the future development path of the firm (see, e.g., Inderst and Mueller (2009) and Hirsch and Walz (2011)). The underlying concept is that firms which initially have a different financing structure are able to invest differently (e.g.…”

Demand for Debt and Equity Before and After the Financial Crisis

“…This is influenced by a number of requirements and considerations, including ownership and managerial independence, which is one of the principal requirements for small firm owners (Poutziouris, 2003). Firm owners with this motivation eschew equity finance from outside investors, and use internal equity (Hirsch and Walz, 2011), resorting to bank funding if external finance is required. The need for control and independence is often determined by the legal form of the firm, as firms in closely held ownership (such as sole proprietorships, partnerships and family firms) are less likely to apply for external equity from new sources than firms in wider ownership (Poutziouris, 2002).…”