Financing hierarchy: Evidence from quantile regression

J.B. Chay, Soon Hong Park, Soojung Kim and Jungwon Suh

Journal of Corporate Finance, 2015, vol. 33, issue C, 147-163

Abstract: This study uses the quantile regression method to determine the relative importance of internal and external sources of funds in financing corporate investments across different levels of investment activities. Our findings lend support to the first (internal–external) rung of the pecking order, as investments are more responsive to internal funds than to external funds at almost all investment levels except at top investment levels. However, empirical support for the second (debt–equity) rung of the pecking order is tenuous, as investments are more responsive to equity issuance than to debt issuance at low and medium investment levels. Intriguingly, firms rely primarily on internal funds for organic growth (via capital expenditures or R&D spending), whereas they use debt capital heavily in financing acquisition-led growth. Finally, firms at high investment levels hold large cash holdings and save a significantly large fraction of equity issue proceeds as cash.

Keywords: Corporate investments; Quantile regression; Internal funds; External funds; Pecking order (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:33:y:2015:i:c:p:147-163

DOI: 10.1016/j.jcorpfin.2015.06.004

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