TY - CHAP

T1 - Financing behavior in new ventures - Evidence from Germany

AU - Schulte, Reinhard

N1 - Conference code: 15

PY - 2008

Y1 - 2008

N2 - Financing is a key issue for starting new ventures as well as for running SMEs or large corporations.However, start ups face some special circumstances restricting their ability to fund financial resources and determining their financial behaviour. This paper intends to analyze the choice of financial resources of business starters with respect to capital structure development in the early business stage. The intention of this paper is to find out what the capital structure of a typical start up is, what causes this structure, and what causes changes in capital structure while doing business in the first three yearsafter market entry. The results show remarkable high rates of equity financing by founder savings, while outside equity is neglectable. Loans, private debt and leasing are the most important outside sources of capital. The latter two are not only covering a significant amount of initial financing needs. Besides, they experience the strongest decrease in the expansion phase of a new venture. The explanation value of the basic pecking order theory is limited if applicating it to start ups. In contrast to theory, convenient earnings do not induce the substitution of bank financing by equity, and earlier growth do not increase bank financing.

AB - Financing is a key issue for starting new ventures as well as for running SMEs or large corporations.However, start ups face some special circumstances restricting their ability to fund financial resources and determining their financial behaviour. This paper intends to analyze the choice of financial resources of business starters with respect to capital structure development in the early business stage. The intention of this paper is to find out what the capital structure of a typical start up is, what causes this structure, and what causes changes in capital structure while doing business in the first three yearsafter market entry. The results show remarkable high rates of equity financing by founder savings, while outside equity is neglectable. Loans, private debt and leasing are the most important outside sources of capital. The latter two are not only covering a significant amount of initial financing needs. Besides, they experience the strongest decrease in the expansion phase of a new venture. The explanation value of the basic pecking order theory is limited if applicating it to start ups. In contrast to theory, convenient earnings do not induce the substitution of bank financing by equity, and earlier growth do not increase bank financing.

KW - Management studies

M3 - Article in conference proceedings

SN - 978-9949-430-18-5

BT - Proceedings of the 15th Nordic Conference on Small Business Research

A2 - , Tallin University of Technology

PB - Tallinn School of Economics and Business Administration

CY - Tallinn (Estonia)

T2 - 15th Nordic Conference on Small Business Research - 2008

Y2 - 21 May 2008 through 23 May 2008

ER -