Ownership concentration Dynamic trade off theory And debt funding of business start-up

This paper examines the dynamics trade-off financial structure in presence of ownership dispersion of newly created firms. Our objective is to test empirically the relevance of trade-off theory regards the debt funding behavior of business start-up. We use a sample of 200 business start-ups and the GMM panel data estimation over the period 2006-2010. We find that ownership dispersion, tangibility and profitability lead to more debts funding. In addition, we prove that the adjustment to the ratio is moderating and that the necessary transaction costs are high for startups. Ownership dispersion leads to more liquidity and accelerates adjustment to debt funding. Trade-off theory could explain the financial behavior of business startup.