Incremental financing decisions in high growth companies: pecking order and debt capacity considerations
AbstractThis 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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Bibliographic InfoPaper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2007-22.
Length: 33 pages
Date of creation: 10 Aug 2007
Date of revision:
financing decisions; pecking order theory; debt capacity; growth;
Other versions of this item:
- T. Vanacke & S. Manigart, 2007. "Incremental Financing Decisions in High Growth Companies: Pecking Order and Debt Capacity Considerations," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/475, Ghent University, Faculty of Economics and Business Administration.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Sophie Manigart & Mike Wright, 2013.
"Reassessing the relationships between private equity investors and their portfolio companies,"
Small Business Economics,
Springer, vol. 40(3), pages 479-492, April.
- S. Manigart & M. Wright, 2011. "Reassessing the Relationships between Private Equity Investors and Their Portfolio Companies," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/735, Ghent University, Faculty of Economics and Business Administration.
- 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.
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