Gonzalo E. Basante Pereira (University of New Hampshire) and Ina Simonovska (University of California – Davis; National Bureau of Economic Research) have posted Contract Enforcement and Young Firm Capital Structure: A Global Perspective, CESifo Working Paper No. 12596, on SSRN. Here is the abstract:
We develop a framework to measure the severity of financial constraints for young firms across countries. Using ORBIS balance-sheet data for 23 economies, we show that short-term leverage rises while long-term leverage falls early in firms’ life cycles, with this pattern persisting longer where contract enforcement is weaker. We build a model of optimal financing under limited enforcement with endogenous debt maturity and blueprint capacity that matches these patterns and enables structural measurement of financial constraints. The framework decomposes the funding gap into within-firm borrowing constraints that ease with repayment history and a scale distortion identifiable through cross-country comparisons.
Recommended.
Lawrence Solum