Abstract
We test the pecking order theory of corporate leverage on a broad cross-section of publicly traded American firms for 1971 to 1998. Contrary to the pecking order theory, net equity issues track the financing deficit more closely than do net debt issues. While large firms exhibit some aspects of pecking order behavior, the evidence is not robust to the inclusion of conventional leverage factors, nor to the analysis of evidence from the 1990s. Financing deficit is less important in explaining net debt issues over time for firms of all sizes.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 217-248 |
| Number of pages | 32 |
| Journal | Journal of Financial Economics |
| Volume | 67 |
| Issue number | 2 |
| DOIs | |
| State | Published - Feb 1 2003 |
| Externally published | Yes |
Bibliographical note
Funding Information:We would like to thank Mike Barclay (the referee), Ken Bechmann, Robert Chirinko, Sudipto Dasgupta, Charles Hadlock, Keith Head, Vojislav Maksimovic, Sheridan Titman, and Karen Wruck, for helpful comments. Feedback from the seminar participants at the 2000 European Finance Association meetings, the 2000 Financial Management Association meetings, the 11th Annual Financial Economics and Accounting Conference (2000) at the University of Michigan, 2001 American Finance Association meetings, the 2001 Rutgers Conference on Corporate Finance, the University of Hong Kong, the University of Victoria, and the Hong Kong University of Science and Technology are appreciated. Murray Frank thanks the B.I. Ghert Family Foundation for financial support. We alone are responsible for the contents and any errors.
Keywords
- Capital structure
- Financing deficit
- Pecking order theory