Debt signaling and outside investors in early stage firms
Epure,Mircea Guasch,Marti
Epure,Mircea
Guasch,Marti
Abstract
By imposing a market like governance and directing entrepreneurs towards professional management, debt, and especially business debt, can serve as a reliable signal for outside equity investors. Such signals of firm accountability can alleviate the stringent information asymmetry at the early stages of the firm, and become stronger for bank business debt, in the presence of personal debt, and in high capital industries. Using the Kauffman Firm Survey, we find evidence consistent with our hypotheses. Outside investors can rely on the governance role of debt and its underpinnings such as the bank-firm relationship. We also corroborate that young firms tend to focus on growth rather than profitability.
Description
Date
2020-03
Journal Title
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Volume Title
Publisher
Research Projects
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Keywords
governance, entrepreneurship, financing, information asymmetry, debt, equity, G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill, M13 - New Firms ; Startups, M40 - General
Citation
Epure, M & Guasch, M 2020, 'Debt signaling and outside investors in early stage firms', Journal of Business Venturing, vol. 35, no. 2, 105929. https://doi.org/10.1016/j.jbusvent.2019.02.002