Long-term finance and entrepreneurship

This paper investigates whether long-term finance affects the firm entry across the world. We construct a new database on short-term and long-term credit provided by commercial banks to the private sector in 85 countries over the period 1995-2014. We then analyze whether differences in entrepreneurship are correlated with the provision of short-term and long-term bank credit. Data on entrepreneurship are extracted from two frequently used databases: the Global Entrepreneurship Monitoring dataset and Entrepreneurship Database, each of which captures different aspects of firm creation. Econometric results indicate that long-term credit does not stimulate the firm entry. On the contrary, we find that short-term credit exerts a positive impact at each stage of firm creation from activity birth to registration. Our findings are robust to a battery of sensitivity tests, including additional control variables, alternative dependent variables,
alternative sample, and changes in econometric specification. Our findings suggest that better provision of short-term credit allows entrepreneurs to apply for a formal loan instead of relying exclusively on informal loans or internal funds, contrary to long-term loans