Title: Coverage of financing deficit in firms in financial distress under the pecking order theory
Authors: Sanfilippo-Azofra, Sergio
López-Gutiérrez, Carlos
Torre-Olmo, Begoña
Citation: E+M. Ekonomie a Management = Economics and Management. 2016, č. 4, s. 104-116.
Issue Date: 2016
Publisher: Technická univerzita v Liberci
Document type: článek
URI: http://hdl.handle.net/11025/22060
ISSN: 1212-3609 (Print)
2336-5604 (Online)
Keywords: kapitálová struktura;finanční nouze;hierarchie
Keywords in different language: capital structure;financial distress;pecking order
Abstract in different language: The fi nancing 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 financing deficit 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 difficulty issuing new debt. Our results also show that firms in financial distress have a greater probability of issuing equity. Therefore, these firms can use equity Financing as an alternative to debt issuance.
Rights: © Technická univerzita v Liberci
CC BY-NC 4.0
Appears in Collections:Číslo 4 (2016)
Číslo 4 (2016)

Files in This Item:
File Description SizeFormat 
Azofra.pdfPlný text1,02 MBAdobe PDFView/Open

Please use this identifier to cite or link to this item: http://hdl.handle.net/11025/22060

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.