Corporate Financial Dynamics: A Pecking-Order Approach
This paper shows that combining an upper constraint on dividends, a lower constraint on dividends due to shareholder preferences, and an interest rate that increases with the debt ratio leads to a pecking-order financial structure: A typical firm will start to finance a new investment by issuing new shares in combination with debt, then grow by financing its investments with retained earnings and borrowing, and eventually stop growing and distribute all profits. Repurchases of shares will speed up this growth path. Economic depreciation may make the firm want to stop the decline in its capital stock earlier.
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Volume (Year): 61 (2006)
Issue (Month): 4 (February)
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References listed on IDEAS
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- Sinn, Hans-Werner, 1991.
"Share repurchases, the 'new' view, and the cost of capital,"
Elsevier, vol. 36(2), pages 187-190, June.
- Sinn, Hans-Werner, 1991. "Share repurchases, the ’new’ view, and the cost of capital," Munich Reprints in Economics 19844, University of Munich, Department of Economics.
- Kanniainen, Vesa & Sodersten, Jan, 1994. "Costs of monitoring and corporate taxation," Journal of Public Economics, Elsevier, vol. 55(2), pages 307-321, October.
- Auerbach, A.J. & Hassett, K. & Sodersten, J., 1995.
"Taxation and Corporate Investment: The Impact of the 1991 Swedish Tax Reform,"
8, Uppsala - Working Paper Series.
- Alan J. Auerbach & Kevin Hassett & Jan Sodersten, 1995. "Taxation and Corporate Investment: The Impact of the 1991 Swedish Tax Reform," NBER Working Papers 5189, National Bureau of Economic Research, Inc.
- Hans-Werner Sinn, 1990.
"The Vanishing Harberger Triangle,"
NBER Working Papers
3225, National Bureau of Economic Research, Inc.
- Kanniainen, Vesa & Sodersten, Jan, 1995. "The importance of reporting conventions for the theory of corporate taxation," Journal of Public Economics, Elsevier, vol. 57(3), pages 417-430, July.
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