Start-up Financing Choice and Post-entry Performance


Using an original data set of start-up firms in Japan, this paper investigates whether post-entry performance differs between start-up firms, according to the source of finance. In particular, the difference among firms that used entrepreneur’s own savings (insider finance), bank borrowing, and risk capital from business angels or venture capital firms is focused upon. It is found that start-up firms financed by business angels are more likely to increase sales even after controlling entrepreneur, firm, and industry characteristics. On the other hand, the use of entrepreneurs’ own savings and financing from founding members and family (quasi-insider finance) negatively influence post-entry performance. In addition, it is not found that those financed by banks tend to grow.

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