The impact of founders’ human capital on initial capital structure: Evidence from Japan

This study explores how start-up firms raise funds at founding. Using a data set of firms founded in the manufacturing, and information and communications technology sectors of Japan during the 2003–2010 period, we examine whether founders’ human capital, including technological human capital, impacts the initial funding of start-up firms. The results reveal that start-up firms managed by entrepreneurial inventors are more likely to use equity financing rather than debt financing, suggesting that technological human capital influences initial capital structure. We also find that start-up firms managed by highly educated founders as well as older founders tend to raise more debt finance and total capital, although such human capital is less associated with initial capital structure. Moreover, we find that start-up firms located in regional cities and towns areas are more likely to rely on debt financing. Furthermore, the results indicate that start-up firms reliant on debt financing at founding are less likely to grow at a higher rate.