Journal of Evolutionary Economics

, Volume 29, Issue 3, pp 1119–1147 | Cite as

Do initial financial conditions determine the exit routes of start-up firms?

  • Yuji HonjoEmail author
  • Masatoshi Kato
Regular Article


This study investigates the impact of initial financial conditions on the post-entry performance of firms in a sample of 16,185 Japanese joint-stock companies. We examine whether initial financial conditions, including entry regulations, affect the duration of survival among Japanese start-up firms, distinguishing between failure and merger. We provide evidence that start-up firms that rely more on equity than on debt financing are less likely to fail within a shorter period, although we find little evidence that initial equity size has a significant effect on the time to failure of start-up firms in our sample. Moreover, we find the negative effect of equity financing on the time to failure to be greater for start-up firms founded following the abolition of regulations for minimum capital requirements. Furthermore, the results reveal that start-up firms with larger initial equity capital are more likely to exit through merger, indicating that the effects of initial financial conditions depend on the type of exit route.


Equity Failure Initial financial conditions Minimum capital requirements Merger Regulation 

JEL classification

G32 G33 G34 L51 M13 



This study was supported by JSPS KAKENHI Grant Numbers 26285060 (for both authors) and JP17K03713 (for the first author). The authors would like to thank Koichiro Onishi, Konari Uchida, Haibo Zhou, and attendees at the International Joseph A. Schumpeter Society Conference held in Montreal, the Research in Entrepreneurship and Small Business (RENT) Conference held in Zagreb, and the Spring Meeting of the Japanese Economic Association held in Nagoya for their useful comments and suggestions. The authors also appreciate the reviewer’s helpful comments and suggestions. Any errors remaining are the authors’ own.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Faculty of CommerceChuo UniversityTokyoJapan
  2. 2.School of EconomicsKwansei Gakuin UniversityNishinomiyaJapan

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