The external financing of investment

Bruce D. Grundy and Patrick Verwijmeren

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: This paper investigates the impact of investment characteristics on the financing choice. We investigate instances of seasoned equity, bank debt, straight non-bank debt, and convertible issues by U.S. firms where the stated use of proceeds is capital expenditure and where we are able to hand-collect and classify the characteristics of the investment. Controlling for a firm's existing assets, capital structure and valuation, we document a strong empirical link between an investment's characteristics and the choice between debt and equity financing. Factor analysis indicates that the principal determinant of the financing choice is whether an investment's payoffs can be described as a hit or miss.

Keywords: Investment characteristics; Financing; Debt-equity choice; Convertible securities (search for similar items in EconPapers)
JEL-codes: E22 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920301899

DOI: 10.1016/j.jcorpfin.2020.101745

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