Social capital and entrepreneurial financing choice |
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| Affiliation: | 1. Simon Fraser University, Burnaby, BC, Canada;2. University of California, Riverside, CA 92521, United States;3. State University of New York at Albany, NY 12222, United States;1. Henry B. Tippie College of Business, Department of Finance, University of Iowa, 108 Pappajohn Business Bldg., Iowa City, IA 52242-1994, United States of America;2. Peter T. Paul College of Business and Economics, Department of Accounting and Finance, University of New Hampshire, 10 Garrison Avenue, Durham, NH 03824-2325, United States of America |
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| Abstract: | This paper investigates the influence of social capital on young firms' financing arrangements. Using a sample of U.S. start-ups, I find that social capital, as captured by secular norms and social networks in the entrepreneur's county, increases access to outside financing and reduces reliance on owner equity to finance the new venture. Financing to entrepreneurs located in counties with greater social capital involves higher amounts of leverage in the form of outside debt. This finding persists in a difference-in-difference test that controls for unobservable geographic determinants of capital structure. |
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