Financing Corporate Growth

Murray Z Frank, Ali Sanati and Holger Mueller

The Review of Financial Studies, 2021, vol. 34, issue 10, 4926-4998

Abstract: Considerable research tackles the aggregate impact of debt financing. We show that equity is more important for firm growth than generally understood. A dollar of equity issuance is associated with an extra $\$0.93$ of real assets, whereas a dollar of debt issuance is associated with an extra $\$0.14$. Firms issue equity first, then increase real assets, and, finally, issue debt while repurchasing equity. We explain this sequence using a model in which debt is tax preferred relative to equity but is subject to limited commitment. We use the estimated model to evaluate how several government policies affect corporate growth.

JEL-codes: E22 E44 G31 G32 G38 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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