Life-cycle effects in small business finance
Ylhäinen, I. (2017). Life-cycle effects in small business finance. Journal of Banking and Finance, 77, 176-196. https://doi.org/10.1016/j.jbankfin.2017.01.008
Published inJournal of Banking and Finance
© 2017 Elsevier B.V. This is a final draft version of an article whose final and definitive form has been published by Elsevier. Published in this repository with the kind permission of the publisher.
This paper studies the life-cycle profiles of small firms’ cost and use of credit using a panel of Finnish firms. The choice of method matters for the conclusions drawn about the relationship between firm age and financing costs; the cross-sectional age profiles of financing costs are hump-shaped and consistent with hold-up theories, whereas methods that control for cohort fixed effects demonstrate that the financing costs decrease monotonically as the firms mature. The life-cycle profiles of the use of credit also indicate that firms are more dependent on financial intermediaries in the early periods of their lives. Furthermore, the cohorts born during recessions pay higher financing costs and use smaller amounts of bank loans, even after their creditworthiness is controlled for. The recession cohort effect appears to be more related to the experience of starting-up the firm in the recession than to the CEOs growing up in a recession during their early adulthood.
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Ylhäinen, Ilkka (University of Jyväskylä, 2013)
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