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

Author

Listed:
  • Vanacker, T.
  • Manigart, S.

    () (Vlerick Leuven Gent Management School)

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.

Suggested Citation

  • Vanacker, T. & Manigart, S., 2007. "Incremental financing decisions in high growth companies: pecking order and debt capacity considerations," Vlerick Leuven Gent Management School Working Paper Series 2007-22, Vlerick Leuven Gent Management School.
  • Handle: RePEc:vlg:vlgwps:2007-22
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

    financing decisions; pecking order theory; debt capacity; growth;

    JEL classification:

    • 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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