Pecking Order Theory and Innovativeness of Companies

Katarzyna Prędkiewicz () and Paweł Prędkiewicz
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Katarzyna Prędkiewicz: Wrocław University of Economics

Chapter Chapter 58 in New Trends in Finance and Accounting, 2017, pp 631-642 from Springer

Abstract: Abstract The purpose of this paper is to explore whether the “pecking order hypothesis” applies to the capital finance preferences of innovative companies. The research is based on a survey of 409 companies. We asked them about attitude towards innovation—three answers were possible (neutral, innovation “on occasion” and pro-innovative attitude) and to indicate the financing hierarchy for five sources of capital (retained earnings, bank credit or loan, additional capital from the current owners, loan from the owners and new external equity capital). We found that in general, the hierarchy is consistent with the pecking order theory. On the first place with the higher frequency, retained earnings were pointed out, on the second place—bank credit or loan, and on the last (fifth)—new external equity. Innovativeness of companies changes the hierarchy of financing in the third and fourth place. Innovative companies after retained earnings and bank loans prefer loans from the owners, whereas companies with neutral attitude towards innovation, additional capital from the current owners. Moreover, the group that describes their attitude towards innovations as “innovation on occasion” is the most diverse in their preferences, whereas the group with “pro-innovative” strategy has consistent preferences.

Keywords: Capital structure; Innovation; Pecking order theory (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-49559-0_58

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DOI: 10.1007/978-3-319-49559-0_58

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