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The Choice of Funding Sources for Start-Ups in a Transitional Economy: The Ability to Predict in a National Context

Author

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  • Olga Obraztsova

    (Lomonosov Moscow State University (Russian Federation))

  • Tatiana Poliakova

    (Lomonosov Moscow State University (Russian Federation))

  • Ekaterina Popovskaya

    (National Research University Higher School of Economics (Russian Federation))

Abstract

Despite the government’s efforts to support entrepreneurship, the major share of start-up funding in transitional economies comes from the owners’ own funds and ‘‘love capital’’ rather than from institutional sources (banks, venture funds, etc.). This increases the asymmetry of information concerning the capabilities of the emerging businesses for potential investors, and thus hinders the development of entrepreneurship as a whole. The paper considers the key determinants affecting the decisions made by entrepreneurial start-ups when choosing from a number of ways to finance their business in transitional economies. An attempt has been made to build models for an adequate prediction of the financial strategies of early entrepreneurs. A number of hypotheses have been put forward to verify external and internal factors influencing the financial choices of early entrepreneurs. Hypotheses were tested on a survey sample of early entrepreneurs from seven transitional economies, including Russia. The predictive values of the final models proved to be effective in predicting start-ups’ financial strategies and in comparing the probability of early entrepreneurs borrowing capital. Our findings confirm that the combinations of external and internal financing differ significantly depending on the national macroeconomic and social context. Given that simple borrowing mechanisms for supporting a business can lead to an undesirable tendency to avoid formal borrowed funds altogether, such behavior can hinder the development of entrepreneurship. The obtained results show that pessimistic short-term expectations about the conditions for entrepreneurship in a region aggravate this problem in Russia. The outcomes demonstrate a need to reduce the burden on start-up businesses and to improve innovative entrepreneurial aspirations by encouraging high confidence in a start-up’s future and find the optimal proportion of borrowed sources in a business’s capital structure.

Suggested Citation

  • Olga Obraztsova & Tatiana Poliakova & Ekaterina Popovskaya, 2017. "The Choice of Funding Sources for Start-Ups in a Transitional Economy: The Ability to Predict in a National Context," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 11(3), pages 71-81.
  • Handle: RePEc:hig:fsight:v:11:y:2017:i:3:p:71-81
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    References listed on IDEAS

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    Cited by:

    1. Obraztsova, O. & Chepurenko, A., 2020. "Entrepreneurial activity in Russia and its cross-regional differences," Journal of the New Economic Association, New Economic Association, vol. 46(2), pages 198-210.
    2. Духон А. Б. & Зиньковский К. В. & Образцова О. И. & Чепуренко А. Ю., 2018. "Влияние Программ Предпринимательского Образования На Развитие Малого Бизнеса В России: Опыт Эмпирического Анализа В Региональном Контексте," Вопросы образования // Educational Studies Moscow, National Research University Higher School of Economics, issue 2, pages 139-172.

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    More about this item

    Keywords

    entrepreneurial activity; early entrepreneurs; financial choice factors; Fisher’s linear discriminant; borrowed funds; love capital; cross-country comparisons; contextual approach;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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