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

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Author Info
Leo de Haan () (De Nederlandsche Bank)
Jeroen Hinloopen () (University of Amsterdam, and Delft University of Technology)

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Abstract

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

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

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  2. Chirinko, Robert S. & Singha, Anuja R., 2000. "Testing static tradeoff against pecking order models of capital structure: a critical comment," Journal of Financial Economics, Elsevier, vol. 58(3), pages 417-425, December. [Downloadable!] (restricted)
  3. Hovakimian, Armen & Opler, Tim & Titman, Sheridan, 2001. "The Debt-Equity Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(01), pages 1-24, March. [Downloadable!]
  4. Jeffrey MacKie-Mason, 1988. "Do Taxes Affect Corporate Financing Decisions?," NBER Working Papers 2632, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Lucas, Deborah J & McDonald, Robert L, 1990. " Equity Issues and Stock Price Dynamics," Journal of Finance, American Finance Association, vol. 45(4), pages 1019-43, September. [Downloadable!] (restricted)
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  6. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July. [Downloadable!] (restricted)
  7. Maria Elena Bontempi, 2002. "The dynamic specification of the modified pecking order theory: Its relevance to Italy," Empirical Economics, Springer, vol. 27(1), pages 1-22. [Downloadable!] (restricted)
  8. Esho, Neil & Lam, Yung & Sharpe, Ian G., 2001. "Choice of Financing Source in International Debt Markets," Journal of Financial Intermediation, Elsevier, vol. 10(3-4), pages 276-305, July. [Downloadable!] (restricted)
  9. Shyam-Sunder, Lakshmi & C. Myers, Stewart, 1999. "Testing static tradeoff against pecking order models of capital structure1," Journal of Financial Economics, Elsevier, vol. 51(2), pages 219-244, February. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  11. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March. [Downloadable!] (restricted)
  12. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  13. L. de Haan & J. Hinloopen, 1999. "Debt or equity? An empirical study of security issues by Dutch companies," WO Research Memoranda (discontinued) 577, Netherlands Central Bank, Research Department. [Downloadable!]
  14. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-44, March. [Downloadable!] (restricted)
  15. Krishnaswami, Sudha & Spindt, Paul A. & Subramaniam, Venkat, 1999. "Information asymmetry, monitoring, and the placement structure of corporate debt1," Journal of Financial Economics, Elsevier, vol. 51(3), pages 407-434, March. [Downloadable!] (restricted)
  16. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Sau Lino, 2007. "New pecking order financing for innovative firms:an overview," Department of Economics Working Papers 200702, University of Turin. [Downloadable!]
    Other versions:
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