Financial Capital and Startup Survival

39 Pages Posted: 15 Aug 2010 Last revised: 15 Dec 2010

See all articles by Jeongsik Lee

Jeongsik Lee

Drexel University - LeBow College of Business

Wei Zhang

Georgia Institute of Technology

Date Written: December 11, 2010


Are entrepreneurs liquidity-constrained? We attempt to answer this question by investigating the impact of financial capital on startup survival. The analysis of about 5,000 startups from the Kauffman Firm Survey data shows that, controlling for human capital, having some type of financial capital increases survival chances, supporting the existence of liquidity constraints. Interestingly, however, the effects are not uniform across types of capital: securing loans is associated with higher survival likelihood but receiving equity investments shortens startup longevity. Accounting for the endogeneity in financing using the Inverse Probability Treatment Weighted (IPTW) estimation reveals that the negative effect of equity capital is largely due to selection. Our findings highlight the heterogeneous effects across types of financial capital, each of which works through a different dynamic in influencing entrepreneurial performance such as survival.

Suggested Citation

Lee, Jeongsik and Zhang, Wei, Financial Capital and Startup Survival (December 11, 2010). Available at SSRN: or

Jeongsik Lee (Contact Author)

Drexel University - LeBow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States

Wei Zhang

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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