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Pecking order and debt capacity considerations for high-growth companies seeking financing

Tom Vanacker (UGent) and Sophie Manigart (UGent)
(2010) SMALL BUSINESS ECONOMICS. 35(1). p.53-69
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Abstract
This paper examines incremental financing decisions within high-growth businesses. A large longitudinal dataset, free of survivorship bias, to cover financing events of high-growth businesses for up to 8 years is analyzed. The empirical evidence shows that profitable businesses prefer to finance investments with retained earnings, even if they have unused debt capacity. External equity is particularly important for unprofitable businesses with high debt levels, limited cash flows, high risk of failure or significant investments in intangible assets. These findings are consistent with the extended pecking order theory controlling for constraints imposed by debt capacity. It suggests that new equity issues are particularly important to allow high-growth businesses to grow beyond their debt capacity.
Keywords
Financing decisions, Pecking order theory, Debt capacity, CAPITAL STRUCTURE CHOICE, SMALL FIRMS, START-UPS, INVESTMENT, DETERMINANTS, EQUITY, PANEL, PERFORMANCE, DECISIONS, Growth, SELECTION

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Chicago
Vanacker, Tom, and Sophie Manigart. 2010. “Pecking Order and Debt Capacity Considerations for High-growth Companies Seeking Financing.” Small Business Economics 35 (1): 53–69.
APA
Vanacker, T., & Manigart, S. (2010). Pecking order and debt capacity considerations for high-growth companies seeking financing. SMALL BUSINESS ECONOMICS, 35(1), 53–69.
Vancouver
1.
Vanacker T, Manigart S. Pecking order and debt capacity considerations for high-growth companies seeking financing. SMALL BUSINESS ECONOMICS. 2010;35(1):53–69.
MLA
Vanacker, Tom, and Sophie Manigart. “Pecking Order and Debt Capacity Considerations for High-growth Companies Seeking Financing.” SMALL BUSINESS ECONOMICS 35.1 (2010): 53–69. Print.
@article{1015370,
  abstract     = {This paper examines incremental financing decisions within high-growth businesses. A large longitudinal dataset, free of survivorship bias, to cover financing events of high-growth businesses for up to 8 years is analyzed. The empirical evidence shows that profitable businesses prefer to finance investments with retained earnings, even if they have unused debt capacity. External equity is particularly important for unprofitable businesses with high debt levels, limited cash flows, high risk of failure or significant investments in intangible assets. These findings are consistent with the extended pecking order theory controlling for constraints imposed by debt capacity. It suggests that new equity issues are particularly important to allow high-growth businesses to grow beyond their debt capacity.},
  author       = {Vanacker, Tom and Manigart, Sophie},
  issn         = {0921-898X},
  journal      = {SMALL BUSINESS ECONOMICS},
  keyword      = {Financing decisions,Pecking order theory,Debt capacity,CAPITAL STRUCTURE CHOICE,SMALL FIRMS,START-UPS,INVESTMENT,DETERMINANTS,EQUITY,PANEL,PERFORMANCE,DECISIONS,Growth,SELECTION},
  language     = {eng},
  number       = {1},
  pages        = {53--69},
  title        = {Pecking order and debt capacity considerations for high-growth companies seeking financing},
  url          = {http://dx.doi.org/10.1007/s11187-008-9150-x},
  volume       = {35},
  year         = {2010},
}

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