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The financing behavior of Dutch firms

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  • Chen, Linda H.
  • Jiang, George J.

    (Groningen University)

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    Abstract

    This paper investigates the financing behaviour of Dutch firms by testing whether a firm’s financing decisions are determined by certain factors identified in various theories. Since a firm’s financing decision is reflected in the changes of its leverage, our research focuses on the relationship between a firm’s debt ratio change and the changes in certain factors. The approach used in the paper is the structural equation modeling (SEM) technique. The model identifies various important factors that are related to Dutch firms’ financing decisions. The empirical results provide moderate support for the static trade-off theory, the pecking-order hypothesis, as well as the dynamic capital structure model. However, our data set is insuffi- cient to confirm the static trade-off theory, and our results provide little evidence to back the asymmetric information argument behind the pecking-order hypothesis.

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    File URL: http://irs.ub.rug.nl/ppn/237344572
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    Bibliographic Info

    Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 01E54.

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    Date of creation: 2001
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    Handle: RePEc:dgr:rugsom:01e54

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    References

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    1. Poitevin, M., 1987. "Financial Signalling and the "Deep Pocket" Argument," Cahiers de recherche 8754, Universite de Montreal, Departement de sciences economiques.
    2. Kim, Wi Saeng & Sorensen, Eric H., 1986. "Evidence on the Impact of the Agency Costs of Debt on Corporate Debt Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(02), pages 131-144, June.
    3. de Jong, Abe & Veld, Chris, 2001. "An empirical analysis of incremental capital structure decisions under managerial entrenchment," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1857-1895, October.
    4. Jacobs, Jan & Sterken, Elmer, 1995. "The IBS-CCSO quarterly model of the Netherlands Specification, simulation and analysis," Economic Modelling, Elsevier, vol. 12(2), pages 111-163, April.
    5. Alan J. Auerbach, 1983. "Real Determinants of Corporate Leverage," NBER Working Papers 1151, National Bureau of Economic Research, Inc.
    6. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
    7. Robert A. Korajczyk & Deborah Lucas & Robert McDonald, 1988. "The Effect of Information Releases on the Pricing and Timing of Equity Issues: Theory and Evidence," NBER Working Papers 2727, National Bureau of Economic Research, Inc.
    8. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    9. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March.
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