Corporate Financial Dynamics: A Pecking-Order Approach
AbstractThis paper shows that combining an upper constraint on dividends, a lower constraint on dividends due to shareholder preferences, and an interest rate that increases with the debt ratio leads to a pecking-order financial structure: A typical firm will start to finance a new investment by issuing new shares in combination with debt, then grow by financing its investments with retained earnings and borrowing, and eventually stop growing and distribute all profits. Repurchases of shares will speed up this growth path. Economic depreciation may make the firm want to stop the decline in its capital stock earlier.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 61 (2006)
Issue (Month): 4 (February)
Contact details of provider:
Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- G39 - Financial Economics - - Corporate Finance and Governance - - - Other
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