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Financing Decisions along a Firm’s Life†cycle: Debt as a Commitment Device

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  • Julia Hirsch
  • Uwe Walz

Abstract

We analyse the life†cycle patterns of a firm’s financing decisions and their interaction with future growth and development decisions. We derive different financing sequences which we link to existing empirical research as well as derive new testable hypotheses regarding differences in firms’ financing decisions to project, firm, market and country characteristics. We provide a rationale for the importance of (external) start†up debt financing as observed in recent empirical studies. Furthermore, we argue that equity financing at both development stages is more likely for closely†held firms and in countries in which entrepreneurs face high stigmatisation costs.

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  • Julia Hirsch & Uwe Walz, 2011. "Financing Decisions along a Firm’s Life†cycle: Debt as a Commitment Device," European Financial Management, European Financial Management Association, vol. 17(5), pages 898-927, November.
    • Handle: RePEc:bla:eufman:v:17:y:2011:i:5:p:898-927
    DOI: 10.1111/j.1468-036X.2011.00618.x
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    Cited by:

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    3. Schauer, Catharina & Elsas, Ralf & Breitkopf, Nikolas, 2019. "A new measure of financial constraints applicable to private and public firms," Journal of Banking & Finance, Elsevier, vol. 101(C), pages 270-295.
    4. Habib, Ahsan & Hasan, Mostafa Monzur, 2019. "Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 188-201.
    5. Chircop, Justin & Johan, Sofia & Tarsalewska, Monika, 2020. "Does religiosity influence venture capital investment decisions?," Journal of Corporate Finance, Elsevier, vol. 62(C).
    6. Francisco-Javier Canto-Cuevas & María-José Palacín-Sánchez & Filippo Di Pietro, 2019. "Trade Credit as a Sustainable Resource during an SME’s Life Cycle," Sustainability, MDPI, vol. 11(3), pages 1-16, January.

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