Financing Decisions along a Firm's Life-cycle: Debt as a Commitment Device

We analyse the life-cycle patterns of a firm's financing decisions and their interaction with future growth and development decisions. We derive different financing sequences which we link to existing empirical research as well as derive new testable hypotheses regarding differences in firms' financing decisions to project, firm, market and country characteristics. We provide a rationale for the importance of (external) start-up debt financing as observed in recent empirical studies. Furthermore, we argue that equity financing at both development stages is more likely for closely-held firms and in countries in which entrepreneurs face high stigmatisation costs.