What sources of finance are firms least likely to use?

Marc Cowling and Huan Yang

Finance Research Letters, 2025, vol. 80, issue C

Abstract: The financing of firms has attracted much attention in capital structure and life-cycle theories. However, the counterpart to these theories is the ‘contentment hypothesis’ which suggests that non-engagement with capital markets is a rational choice for most firms, and only those that desire growth engage with the market. In this paper we examine the extent to which firms use thirteen alternative sources of external financing using a large UK dataset. Our findings show that 99.5 % never use bonds, 96.8 % P2P, 93.6 % external equity, and 92.7 % factoring. When firms do use external finance, it is largely short-term forms of debt. This suggests that capital structure and life-cycle theories are too expansive and do not reflect the true nature of firms' engagement with capital markets.

Keywords: Finance sources; Credit rationing; Debt; Equity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:80:y:2025:i:c:s1544612325006452

DOI: 10.1016/j.frl.2025.107385

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