The role of legal status in influencing bank financing and new firm growth

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Abstract
This paper examines the characteristics of new firm founders who use loans and overdrafts from the clearing banks to finance initially their business. Bank lending to new firms appears unrelated to the personal characteristics of founders, but related to whether individuals provide personal savings and the legal status of the business. This contrasts with the factors which influence the growth of new firms. Here, the founder's age, employment status and birthplace are associated with larger firms. The only variable which appears to influence consistently both bank lending and the employment growth in firms is whether or not the business is a limited company.

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