Creditors use startups' choice of legal form as a signal for debt financing

Formal debt financing is an important source of external financing for startups, but creditors face information gaps, as startups lack a proven track record. Felix Bracht, Jeroen Mahieu and Steven Vanhaverbeke argue that credit providers use a startup's legal form choice to infer its default risk, showing that choosing a legal form with low minimum capital requirements signals higher default risk resulting in lower access to debt financing.

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Felix Bracht, Jeroen Mahieu and Steven Vanhaverbeke

4 May 2023

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LSE Business Review

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https://blogs.lse.ac.uk/businessreview/2023/05/04/creditors-use-startups-choice-of-legal-form-as-a-signal-for-debt-financing/

This work is published under POID and the CEP's Growth programme.

This publication comes under the following CEP theme: Management practices and productivity