@article{c2b540d2d2f5475b893336024f0df282,
title = "Debt signaling and outside investors in early stage firms",
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.",
keywords = "Debt, Entrepreneurship, Equity, Financing, Governance, Information asymmetry",
author = "Mircea Epure and M. Guasch",
note = "Funding Information: We thank the Editor, Jonathan Arthurs, three anonymous referees, Mario Daniele Amore, Gavin Cassar, Antonio D{\'a}vila, Hans Degryse, Javier G{\'o}mez Biscarri, Gaizka Ormazabal, Petya Platikanova, Carlos Serrano, as well as seminar and conference participants at ESADE, Universitat Pompeu Fabra, IE Business School, UB, the Society for Institutional and Organizational Economics, the European Accounting Association, INFORMS International, ERMAS, and the Academy of Management Annual Meeting for useful comments. We thank the Kauffman Foundation for providing access to its Firm Survey and continuous support. This work received support from the Spanish Government through the grants ECO2014-57131-R , ECO2017-85763-R and SEV-2015-0563 , and from ACCID . This paper previously circulated with the title “Information Asymmetry Reduction in Opaque Contexts: Evidence from Debt and Outside Equity Financing in Early Stage Firms.” Usual disclaimers apply. Funding Information: We thank the Editor, Jonathan Arthurs, three anonymous referees, Mario Daniele Amore, Gavin Cassar, Antonio D?vila, Hans Degryse, Javier G?mez Biscarri, Gaizka Ormazabal, Petya Platikanova, Carlos Serrano, as well as seminar and conference participants at ESADE, Universitat Pompeu Fabra, IE Business School, UB, the Society for Institutional and Organizational Economics, the European Accounting Association, INFORMS International, ERMAS, and the Academy of Management Annual Meeting for useful comments. We thank the Kauffman Foundation for providing access to its Firm Survey and continuous support. This work received support from the Spanish Government through the grants ECO2014-57131-R, ECO2017-85763-R and SEV-2015-0563, and from ACCID. This paper previously circulated with the title ?Information Asymmetry Reduction in Opaque Contexts: Evidence from Debt and Outside Equity Financing in Early Stage Firms.? Usual disclaimers apply. Publisher Copyright: {\textcopyright} 2019 Elsevier Inc.",
year = "2020",
month = mar,
doi = "10.1016/j.jbusvent.2019.02.002",
language = "English",
volume = "35",
journal = "Journal of Business Venturing",
issn = "0883-9026",
publisher = "Elsevier Inc.",
number = "2",
}