Survival of Start-Ups: Evidence on Personal Characteristics and Lender Evaluations

Abstract

This study investigates the determinants of start-up survival in a sample of Finnish firms. Our database allows us to investigate how qualitative information based on the personal history and characteristics of the owner, firm specific characteristics and credit analysts’ subjective evaluation of the business prospects and market position. As far as the results go, we find that an increase in equity to total assets increases the likelihood that the firm will survive. The results on gender suggest that firms with two different genders seem to have bigger likelihood to fail than firms operated by male owners only. Further, the results indicate that being employed prior to starting up a business increases the likelihood of survival. Finally, the lender’s evaluation of the demand for the firm’s products or services seems to be a good predictor of the likelihood of survival. When it comes to the results on how the lenders evaluate the firms’ business prospects, we find that an increase in the owners’ equity investment and the fact that the entrepreneur was employed before he/she started the business, both improve the credit analysts’ evaluation of the business prospects.