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Ordering the Preference Hierarchies for Internal Finance, Bank Loans, Bond and Share Issues

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  • Leo de Haan

    ()
    (De Nederlandsche Bank)

  • Jeroen Hinloopen

    ()
    (University of Amsterdam, and Delft University of Technology)

Abstract

We estimate the incremental financing decision for a sample of some 150Dutch companies for the years 1984 through 1997, thereby distinguishinginternal finance and three types of external finance: bank borrowing, bondissues and share issues. First, we estimate a multinomial logit model whichconfirms several predictions of both the static trade-off theory and thepecking-order theory as to the determinants of financing choices. Next, weuse ordered probit models to determine which financing hierarchy fits thedata best. The results suggest that Dutch firms have a most-preferredfinancing hierarchy: (i) internal finance, (ii) bank loans, (iii) shareissues, (iv) bonds issues.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-072/2.

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Date of creation: 01 Aug 2002
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Handle: RePEc:dgr:uvatin:20020072

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Web page: http://www.tinbergen.nl

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Keywords: corporate finance; discrete choice models; ordered financing hierarchies;

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  9. Leo de Haan & Jeroen Hinloopen, 2002. "Ordering the Preference Hierarchies for Internal Finance, Bank Loans, Bond and Share Issues," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-072/2, Tinbergen Institute.
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