Persistence of initial debt in the long-term employment dynamics of new firms


  • I would like to thank Ken Hendricks, David Green and John Cragg for their many helpful comments and suggestions, which have contributed to the content of this paper. I am also grateful to Statistics Canada for the provision of data used in this analysis, and especially acknowledge the BLMA division for help and hospitality provided. Financial support for this research was provided by the Entrepreneurial Research Alliance (MCRI grant #412-98-0025) at the University of British Columbia. All errors remain the responsibility of the author. Email:


Abstract.  This paper investigates whether a firm's future growth is independent of its initial debt structure. The non-parametric test consists of determining whether the conditional size distribution for firms surviving through early years of life depends upon debt-to-asset ratio at birth. Initially, I test for initial size dependence in the growth process by applying Pakes and Ericson (1998) procedure. I then test the hypothesis that initial debt-to-asset ratios are irrelevant to growth of ten-year old manufacturing firms. I reject the null of independence, and find evidence of a non-monotonic relationship between age ten conditional size and the initial debt-to-asset ratio.


Ce texte examine la question à savoir si la croissance future d'une firme dépend de la structure initiale de sa dette. Le test non paramétrique consiste à détermine si la distribution conditionnelle de la taille des firmes qui survivent au cours des premières années dépend du ratio dette/actif à la naissance. L'auteur teste d'abord l'indépendance de la taille initiale et du processus de croissance à l'aide de la procédure de Pakes et Ericson (1998) et ensuite l'hypothèse que le ratio initial dette/actif n'est pas pertinent pour expliquer la croissance de firmes manufacturières qui ont survécu dix ans. L'hypothèse nulle d'indépendance est rejetée et on trouve trace d'une relation non monotone entre la taille conditionnelle à dix ans et le ratio initial de la dette sur l'actif.