Document Type

Working Paper






Metropolitan Studies Program Series


We thank Esther Gray, Mary Santy, and Ann Wicks for their undying patience in preparing the manuscript and Donald Bruce for his superb research assistance. We are grateful to Yakov Amihud, William Gentry, Paul Gompers, Laurie Hodrick, Steve Kaplan, Josh Lerner, Burton Malkiel, Tim Opler, Mitchell Petersen, James Poterba, Raghu Rajan, Roberta Romano, Tony Saunders, Greg Udell, David Yermack, Luigi Zingales, and seminar participants at Columbia University and the NBER Corporate Finance Winter 1997 Meetings for useful comments. This research was supported in part by Princeton University’s Center for Economic Policy Studies and Syracuse University’s Center for Policy Research. Rosen was a Visiting Scholar at the Sage Foundation when this research was being conducted.


Economic Policy | Economics | Public Affairs, Public Policy and Public Administration | Public Policy


Using data from the Wisconsin Entrepreneurial Climate Study, we study the sources of firms’ finance during the very early stages of their lives. Our focus is the evolution of the mix of financial capital from “insiders” and “outsiders” as firms age. We find that at the beginning of firms’ life cycles, the proportion of funds from internal sources increases with age, while the proportion from banks, venture capitalists, and private investors declines. There is also evidence that these patterns eventually reverse themselves, with the proportion of insider finance ultimately declining and the proportion of outsider finance increasing with age. We argue that these findings are consistent with elements of both reputation-based and monopoly-lender theories of firm finance.


0732 507X

Additional Information

Metropolitan studies program series occasional paper no.191


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Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.



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