IDEAS home Printed from https://ideas.repec.org/a/bla/manchs/v94y2026i3p278-295.html

How Do Businesses Finance New Investment?

Author

Listed:
  • Marc Cowling
  • Nick Wilson
  • Weixi Liu
  • Huan Yang

Abstract

This paper investigates how UK firms finance new investment and whether their choices follow a financing hierarchy consistent with leading theories of capital structure. Using a survey of 2886 firms conducted by the UK Department for Business and Trade and the Bank of England (2020–2023), we examine six financing sources: retained earnings, owner's capital, trade credit, bank loans, non‐bank debt, and outside equity. Our findings show that retained earnings dominate investment financing, followed by injections of capital from owners, while bank and non‐bank debt are secondary sources and outside equity remains marginal. Econometric analysis reveals that retained earnings substitute for all other sources, whereas owner's capital is complementary to both bank and non‐bank debt. Financing patterns vary systematically by firm size, age, and investment type. Overall, the results provide strong support for the pecking order theory, with additional insights from life‐cycle theory, and highlight the importance of policy in shaping SME access to finance during periods of economic disruption.

Suggested Citation

  • Marc Cowling & Nick Wilson & Weixi Liu & Huan Yang, 2026. "How Do Businesses Finance New Investment?," Manchester School, University of Manchester, vol. 94(3), pages 278-295, June.
    • Handle: RePEc:bla:manchs:v:94:y:2026:i:3:p:278-295
    DOI: 10.1111/manc.70029
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/manc.70029
    Download Restriction: no
    File URL: https://libkey.io/10.1111/manc.70029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:manchs:v:94:y:2026:i:3:p:278-295. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/semanuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.