The role of trust and social commitment in start-up financing

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Abstract

Access to finance is a perennial problem for business start-ups. This article advances the extant literature on the determinants of entrepreneurial finance by presenting a comprehensive analysis of the amount needed to start a business, the amount of self-investment and the number of external sources of financing utilized. Based on information from the Global Entrepreneurship Monitor 2015, the empirical analysis shows that the availability of external sources of financing depend primarily on demographics, entrepreneurial experience, business features, e.g., export propensity and growth potential; and, on the phase of economic development. Furthermore, relatively high levels of social trust may increase the likelihood of obtaining external financing. The novelty of the product/service offered, financial barriers and investor/property rights protection in turn may also explain the proportion of self-investment provided to a new business. An analysis of financing options of socially-oriented businesses shows that they are more successful in obtaining financial support from private investors/venture capitalists and governments.

Original languageEnglish
Article number101722
JournalInternational Review of Financial Analysis
Volume75
DOIs
StatePublished - May 2021

Keywords

  • Entrepreneurial finance
  • Gender
  • Global entrepreneurship monitor
  • Social entrepreneurship
  • Social trust

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