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Home | Events Archive | Start-up Costs and The Capital Structure of Young Firms
Seminar

Start-up Costs and The Capital Structure of Young Firms


  • Series
    TI Finance Research Seminars
  • Speaker
    Guillaume Vuillemey (HEC Paris)
  • Field
    TI Finance
  • Location
    Tinbergen Institute (Gustav Mahlerplein 117), Room 1.01
    Amsterdam
  • Date and time

    October 16, 2019
    12:45 - 14:00

We show that start-up costs are a prime determinant of the capital structure of young firms. First, we document novel facts. While they are in principle more financially constrained, young firms exhibit higher leverage and raise longer-maturity debt than old firms. This holds true both across and within firms. Second, we show theoretically that fixed start-up costs can explain with these facts. Third, we estimate start-up costs at the industry-level and test novel predictions from the model in a large sample of newly-created French firms. Fourth, we use a quasi-natural experiment to study the real implications of start-up costs. Upon a negative shock to banks, there is lower firm creation in industries with higher start-up costs. Thus, we highlight a new source of heterogeneity in the transmission of financial shocks, which can help to explain slow recoveries.