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Incremental financing decisions in high growth companies: pecking order and debt capacity considerations

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Author Info
Vanacker, T.
Manigart, S. () (Vlerick Leuven Gent Management School)

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Abstract

This paper researches the determinants of incremental financing decisions made by high growth companies. For this purpose, we use a longitudinal dataset, free of survivorship bias, covering the financing events of high growth companies for up to eight years. Results are generally consistent with the extended pecking order theory controlling for constraints imposed by debt capacity. Profitable companies have a preference for internal finance, even if they have unused debt capacity. External equity is particularly important for unprofitable companies with high debt levels, limited cash flows, high risk of failure and significant investments in intangible assets. As a result, findings suggest that high growth companies do not deliberately issue external equity, but rather are pushed towards external equity when there are no alternatives, such as retained earnings and financial debt.

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Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2007-22.

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Length: 33 pages
Date of creation: 10 Aug 2007
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Handle: RePEc:vlg:vlgwps:2007-22

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Related research
Keywords: financing decisions; pecking order theory; debt capacity; growth;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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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.:
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Cited by:
(explanations, 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. B. Leyman & K. Schoors & P. Coussement, 2008. "Court-supervised Restructuring: Pre-bankruptcy Dynamics, Debt Structure and Debt Rescheduling," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/507, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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