Coverage of financing deficit in firms in financial distress under the pecking order theory

The financing decisions adopted by firms in financial distress are very important because most of the strategy decisions such as investments, market entry, or product diversification are considerably affected by the financial constraints faced by them. However, these decisions are still not well kno...

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Autores: Sanfilippo Azofra, Sergio|||0000-0001-8941-2033, López Gutiérrez, Carlos|||0000-0003-1703-6440, Torre Olmo, Begoña|||0000-0001-6081-9868
Tipo de recurso: artículo
Fecha de publicación:2016
País:España
Institución:Universidad de Cantabria (UC)
Repositorio:UCrea Repositorio Abierto de la Universidad de Cantabria
Idioma:inglés
OAI Identifier:oai:repositorio.unican.es:10902/10239
Acceso en línea:http://hdl.handle.net/10902/10239
Access Level:acceso abierto
Palabra clave:Capital structure
Financial distress
Pecking order
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spelling Coverage of financing deficit in firms in financial distress under the pecking order theorySanfilippo Azofra, Sergio|||0000-0001-8941-2033López Gutiérrez, Carlos|||0000-0003-1703-6440Torre Olmo, Begoña|||0000-0001-6081-9868Capital structureFinancial distressPecking orderThe financing decisions adopted by firms in financial distress are very important because most of the strategy decisions such as investments, market entry, or product diversification are considerably affected by the financial constraints faced by them. However, these decisions are still not well known and empirical evidence about firms in financial distress is controversial. Previous studies do not find support for either the trade-off theory or the pecking order theory, which explain the financial decisions of healthy firms. Distressed firms frequently have to use all of their available financial resources to cover their financing deficit. This could give rise to a concave quadratic relationship between fi nancing defi cit and net debt issued, which might well explain the ambivalent results about the financial decisions of these firms. To analyze this quadratic relationship, which has not been studied previously, we perform an empirical analysis on a sample of 3,337 listed firms from Germany, Canada, the United States, France, Italy and the United Kingdom. Our results show that the pecking order theory does not appear to have a higher explanatory power in healthy firms. Moreover, the hierarchy suggested by the pecking order theory is not totally applicable in firms in financial distress. Our results show that as financing deficit grows, these firms use debt decreasingly, which gives rise to a concave quadratic relationship between financing deficit and net debt issued. This suggests that firms in financial distress have diffi culty issuing new debt. Our results also show that firms in financial distress have a greater probability of issuing equity. Therefore, these fi rms can use equity financing as an alternative to debt issuance.Technická univerzita v LiberciUniversidad de Cantabria20162016-01-01journal articlehttp://purl.org/coar/resource_type/c_6501NAhttp://purl.org/coar/version/c_be7fb7dd8ff6fe43info:eu-repo/semantics/articlehttp://hdl.handle.net/10902/10239Ekonomie a Management, 2016, 19(4), 104-116reponame:UCrea Repositorio Abierto de la Universidad de Cantabriainstname:Universidad de Cantabria (UC)Inglésengopen accesshttp://purl.org/coar/access_right/c_abf2info:eu-repo/semantics/openAccessoai:repositorio.unican.es:10902/102392026-06-02T12:39:31Z
dc.title.none.fl_str_mv Coverage of financing deficit in firms in financial distress under the pecking order theory
title Coverage of financing deficit in firms in financial distress under the pecking order theory
spellingShingle Coverage of financing deficit in firms in financial distress under the pecking order theory
Sanfilippo Azofra, Sergio|||0000-0001-8941-2033
Capital structure
Financial distress
Pecking order
title_short Coverage of financing deficit in firms in financial distress under the pecking order theory
title_full Coverage of financing deficit in firms in financial distress under the pecking order theory
title_fullStr Coverage of financing deficit in firms in financial distress under the pecking order theory
title_full_unstemmed Coverage of financing deficit in firms in financial distress under the pecking order theory
title_sort Coverage of financing deficit in firms in financial distress under the pecking order theory
dc.creator.none.fl_str_mv Sanfilippo Azofra, Sergio|||0000-0001-8941-2033
López Gutiérrez, Carlos|||0000-0003-1703-6440
Torre Olmo, Begoña|||0000-0001-6081-9868
author Sanfilippo Azofra, Sergio|||0000-0001-8941-2033
author_facet Sanfilippo Azofra, Sergio|||0000-0001-8941-2033
López Gutiérrez, Carlos|||0000-0003-1703-6440
Torre Olmo, Begoña|||0000-0001-6081-9868
author_role author
author2 López Gutiérrez, Carlos|||0000-0003-1703-6440
Torre Olmo, Begoña|||0000-0001-6081-9868
author2_role author
author
dc.contributor.none.fl_str_mv Universidad de Cantabria
dc.subject.none.fl_str_mv Capital structure
Financial distress
Pecking order
topic Capital structure
Financial distress
Pecking order
description The financing decisions adopted by firms in financial distress are very important because most of the strategy decisions such as investments, market entry, or product diversification are considerably affected by the financial constraints faced by them. However, these decisions are still not well known and empirical evidence about firms in financial distress is controversial. Previous studies do not find support for either the trade-off theory or the pecking order theory, which explain the financial decisions of healthy firms. Distressed firms frequently have to use all of their available financial resources to cover their financing deficit. This could give rise to a concave quadratic relationship between fi nancing defi cit and net debt issued, which might well explain the ambivalent results about the financial decisions of these firms. To analyze this quadratic relationship, which has not been studied previously, we perform an empirical analysis on a sample of 3,337 listed firms from Germany, Canada, the United States, France, Italy and the United Kingdom. Our results show that the pecking order theory does not appear to have a higher explanatory power in healthy firms. Moreover, the hierarchy suggested by the pecking order theory is not totally applicable in firms in financial distress. Our results show that as financing deficit grows, these firms use debt decreasingly, which gives rise to a concave quadratic relationship between financing deficit and net debt issued. This suggests that firms in financial distress have diffi culty issuing new debt. Our results also show that firms in financial distress have a greater probability of issuing equity. Therefore, these fi rms can use equity financing as an alternative to debt issuance.
publishDate 2016
dc.date.none.fl_str_mv 2016
2016-01-01
dc.type.none.fl_str_mv journal article
http://purl.org/coar/resource_type/c_6501
NA
http://purl.org/coar/version/c_be7fb7dd8ff6fe43
dc.type.openaire.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv http://hdl.handle.net/10902/10239
url http://hdl.handle.net/10902/10239
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
eu_rights_str_mv openAccess
dc.publisher.none.fl_str_mv Technická univerzita v Liberci
publisher.none.fl_str_mv Technická univerzita v Liberci
dc.source.none.fl_str_mv Ekonomie a Management, 2016, 19(4), 104-116
reponame:UCrea Repositorio Abierto de la Universidad de Cantabria
instname:Universidad de Cantabria (UC)
instname_str Universidad de Cantabria (UC)
reponame_str UCrea Repositorio Abierto de la Universidad de Cantabria
collection UCrea Repositorio Abierto de la Universidad de Cantabria
repository.name.fl_str_mv
repository.mail.fl_str_mv
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