How do insiders affect start-up financing?

Abstract

This paper examines how support from entrepreneurs’ insiders affects financial constraints for entrepreneurs using a survey of 2,644 new firms in Japan. The major findings of this paper are as follows. First, bank referrals from their insiders alleviate entrepreneurs’ financial constraints, whereas there is no evidence that the provision of initial funds from such insiders alleviates the constraints. Second, the effect of such referrals can be more pronounced for financially constrained entrepreneurs. Third, the referrals are effective in alleviating entrepreneurs’ financial constraints even if they do not receive initial funds from their insiders.