Is Leverage Leveraging the Business Start-ups?

One of the reasons business start-ups face credit constraints is their lack of credibility in the nancial markets. Yet, debt nancing is one of the major sources of funding a new business. Although initial capital structure lays the path for the future growth trajectory, regular supply of funds is also important for rm survival, enhanced productivity, and higher innovation. Apart from nancial structure, organizational practices and employee satisfaction likewise contribute to a higher level of innovation. Using a rich dataset on American business start-ups provided by the Kau man Firm Survey, this paper examines the simultaneous relationship between rm leverage and employee well-being, and their impact on innovation. Negative binomial xed e ects are used to analyze the e ect of employee well-being and leverage on count data of patents and copyrights which are used as a proxy for innovation. The paper demonstrates that employee well-being positively a ects the rm's innovation while a higher leverage ratio has a negative impact on innovation. No signi cant relation is found between leverage and employee well-being. JEL Classi cation Codes: G32, J32, M13, O34