Does Initial Access to Bank Loans Predict Start‐ups' Future Default Probability? Evidence From Italy

Abstract

In Europe, several countries have established public loan guarantee funds throughout direct/indirect loan programs to facilitate the access of SMEs and start-ups to bank credit. This paper investigates whether start-ups' level of access to bank loans during the early stage represents an imprinting factor with effects on the likelihood of survival once the firm reaches maturity. We rely on a firm-level longitudinal data set of 49,111 Italian startups born from 2003 to 2005. Implementing a 2SLS regression analysis we show that the initial level of start-up bank debt negatively influences the probability of default controlling for firm characteristics and performance. (JEL G21, M20, H32) * The authors would like to thank an anonymous referee that kindly reviewed this manuscript and provided valuable comments and suggestions, and the CERVED group for the data provided. The authors are also grateful to

Access to bank financing and start‐up resilience: A survival analysis across business sectors in a time of crisis

“…This means that Italian start‐ups with an increasing weight of bank loans have an approximately 20% decreased risk of failure. Our finding does fully confirm Hypothesis 1 and is in line with previous studies (Castaldo et al., 2020; Cole & Sokolyk, 2018; Wamba et al., 2017).…”

“…Additionally, in the aforementioned Castaldo et al. (2020), the recourse to long‐term bank credit displaces a stronger effect over the start‐ups survival probability with respect to the short‐term bank credit. On the other hand, short‐term bank credit lines are more effective in securing the external liquidity essential to ensure the operational capacity of start‐ups, thus enabling the company to be resilient over time (Mach & Wolken, 2011).…”

“…Moreover, starting with the seminal paper of Cressy (1996), a relevant part of the literature has empirically investigated the role of bank credit relative to both SMEs and start‐ups’ survival (Astebro & Bernhardt, 2003; Carter & Van Auken, 2006; Castaldo et al., 2020; Cole & Sokolyk, 2018; Cosh et al., 2009; Crepon & Duguet, 2003; Deloof & Vanacker, 2018; Wamba et al., 2017). However, as pointed out by Briozzo et al.…”

“…A more recent work, Castaldo et al. (2020), using a 2SLS regression method on 49,111 Italian start‐ups born in 2003, 2004, and 2005, showed that, after controlling for firm characteristics and performance, the initial recourse to bank debt negatively influences their probability of default. Moreover, the authors found that the intensity of the effect exerted on survival is heterogeneous across the different levels of overall bank credit contracted by the firm.…”

“…However, despite the great attention given to the survival of start‐ups, there are only a limited number of studies on the relationship between access to bank financing and their survival. To date, the empirical literature has mainly focussed on the effects of total debt on the probability of survival of the firm (among many, Astebro & Bernhardt, 2003; Cole & Sokolyk, 2018; Musso & Schiavo, 2008; Wamba et al., 2017) and, to a lesser extent, on the effects of the duration of bank debt (Castaldo et al., 2020; Collett et al., 2014). In both cases, the results have been mixed with regard to the adopted empirical strategy and the country environment in which the analysis has been conducted.…”