The determinants of debt and (private-) equity financing in young innovative SMEs: evidence from Germany

Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. On 
Financial theory creates a puzzle. Some authors argue that high-risk entrepreneurs choose debt contracts instead of equity contracts since risky but high returns are of relatively more value for a loan-financed firm. On the contrary, authors who focus explicitly on start-up finance predict that entrepreneurs are the more likely to seek equity-like venture capital contracts, the more risky their projects are. Our paper makes a first step to resolve this puzzle empirically. We present microeconometric evidence on the determinants of debt and equity financing in young and innovative SMEs. We pay special attention to the role of risk for the choice of the financing method. Since risk is not directly observable we use different indicators for financial and project risk. It turns out that our data generally confirms the hypothesis that the probability that a young high-tech firm receives equity financing is an increasing function of the financial risk. With regard to the intrinsic project risk, our results are less conclusive, as some of our indicators of a risky project are found to have a negative effect on the likelihood to be financed by private equity.
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Metadaten
Author:Dorothea Schäfer, Axel Werwatz, Volker Zimmermann
URN:urn:nbn:de:hebis:30-10587
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,06
Series (Serial Number):CFS working paper series (2004, 06)
Document Type:Working Paper
Language:English
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Debt and equity financing; financial risk und project risk; venture capital and bank financing
SWD-Keyword:Beteiligungsfinanzierung; Deutschland; Fremdfinanzierung; Klein- und Mittelbetrieb; Private Equity
Issue:March 2004
HeBIS PPN:222079886
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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