How debt creates pressure to perform when information asymmetries are large: Empirical evidence from business start-ups KU Leuven
In this paper, we empirically examine how leverage affects firm performance when information asymmetries are large. We argue that entrepreneurs are strongly incentivized to maximize earnings when leverage is high in order to reduce the likelihood of adverse credit decisions and firm liquidation. Our empirical tests focus on the effects of leverage on firm profitability and growth in earnings during a 5-year window after start-up for a large and ...