An analysis of growth in new firms and the impact of liquidity constraints

An analysis of growth in new firms and the impact of liquidity constraints
Document type
Working Paper
Author(s)
Hay, Graham; Mole, Kevin
Publisher
Warwick Business School
Date of publication
1 May 2004
Series
Warwick Business School’s Small and Medium Sized Enterprise Centre Working Papers
Subject(s)
Small business & enterprise: the practicalities of running a small business and the theory of entrepreneurship, Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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This paper analyses growth for a sample of 624 firms located in three English counties. Using 52 variables, heteroskedasticity adjusted OLS is used to estimate their role in generating growth in new firms for the period 2000 to 2001 and for 1997 to 2001. Summary statistics show constrained founders own slightly more businesses; make greater use of external finance and are equally like to survive. Estimation results show liquidity constraints are significant over four years but not one. The evidence is consistent with learning models of both the entrepreneur and bank. Growth appears deterministic but Gibrat’s law cannot be rejected.

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