Trade-Off and Pecking Order Theories of Debt

Frank, Murray Z.; Goyal, Vidhan K.

doi:10.2139/ssrn.670543

Cited by 329 publications

(379 citation statements)

References 160 publications

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“…Empirical studies found that factors such as firm size, firm age, ownership structure, profitability, asset structure and industry are important determinants of the demand for and availability of financing instruments (Chittenden and Hutchinson 1996;Frank and Goyal 2007;Howorth 2001;López-Gracia and Sogorb-Mira 2008;Michaelas et al 1999;Romano et al 2001). In addition, a number of studies focused on the financing determinants of specific types of firms like innovative and high-growth companies (Freel 2006;Hall 2010;Mazzucato 2013;Mina et al 2013;Vanacker and Manigart 2010).…”

Section: Theoretical Contributionsmentioning

confidence: 99%

Financing patterns of European SMEs – an empirical taxonomy

2016

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PrefaceSmall and medium-sized enterprises (SMEs) are often called the backbone of the European economy, contributing to job creation and economic growth. In 2013, more than 21.5m of SMEs in the European Union made for more than 99% of all non-financial enterprises, employed almost 89m people (67% of total employment), and generated 58% of total added value. However, access to finance is more difficult for SMEs than for larger enterprises, not only during the current financial and economic crisis, but also on a permanent structural basis, due to market imperfections in SME financing (see Kraemer-Eis, Lang and Gvetadze, 2015, for more details).The European Investment Fund (EIF) supports Europe's SMEs by improving their access to finance through a wide range of selected financial intermediaries. To this end, the EIF primarily designs, promotes and implements equity and debt financial instruments which specifically target SMEs. In this role, the EIF fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment.EIF's Research & Market Analysis team has established a research cooperation with the Chair of Management at the University of Trier. This EIF Working Paper is one result of the successful cooperation. A follow-on project, building on the findings of the presented analysis and financially supported by the EIB Institute under the Knowledge Programme, is scheduled to start soon.Even though research in SME financing has strongly increased over the recent years, the financing patterns of SMEs in Europe are still not well analysed. Previous empirical studies have shown that firm-, product-, industry-, and country-specific factors influence the financing of SMEs. However, there are only few studies with a holistic perspective taking into account the interrelationships between different financing instruments and their determinants.The research, presented in this EIF Working Paper, provides an integrative perspective of SME financing patterns by identifying and analysing in detail the use of various financing instruments by SMEs. The findings can support the design and development of SME financing instruments across Europe.We thank the researchers for their important work and the very good cooperation with the EIF. We also thank the participants of a seminar with the researchers, which took place at EIF, as well as the participants of a workshop that took place at the European Central Bank, for fruitful discussions. This EIF Working Paper takes a holistic approach to investigate SME financing patterns in Europe by performing a cluster analysis including 12,726 SMEs in 28 European countries. The results reveal that SME financing in Europe is not homogenous but that different financing patterns exist. The cluster analysis identifies six distinct SME financing types: mixed-financed SMEs, statesubsidised SMEs, debt-financed SMEs, flexible-debt-financed SMEs, trade-financed SMEs and internally-financed SMEs. These SME financing types differ according to the number of fin...

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Section: Theoretical Contributionsmentioning

confidence: 99%

Financing patterns of European SMEs – an empirical taxonomy

2016

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“…These approaches argue that firms tend to choose between financial methods based on agency costs (STT) and / or asymmetric information (POT) between leader-shareholders and creditors (Myers and Majluf, 1984;Myers, 1984;Fama and French, 2002;Bushman et al, 2004;Antoniou et al, 2007;Frank and Goyal, 2007;Huang and Ritter, 2009;Graham et al, 2013).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Does Managerial Emotional Biases Affect Debt Maturity Preference? Bayesian Network Method: Evidence from Tunisia

Ali

Jarboui

2016

Financial Risk and Management Reviews

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JEL Classification: G14, G31, G32, D80. Contribution/ OriginalityThe paper pushing organizations managers to choose according to their emotional level (applied emotional capacity test up psychometric testing). In addition, it increases the validity of inferences from the research. This paper incites governments to establish training programs aimed at the development of learning of emotional capacity.

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“…A broader review of the underlying literature can be found in Harris and Raviv (1991) or more recently in Frank and Goyal (2008).…”

Section: Literature Reviewmentioning

confidence: 99%

Target gearing in the UK: a triangulated approach

Tucker

Pointon

Olugbode

2010

Int J of Managerial Finance

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PurposeThe purpose of this study is to investigate the incidence of target gearing behaviour in firms as well as the drivers of such behaviour.Design/methodology/approachThe paper employs a triangulation approach across three methodological phases: a questionnaire survey, logistic regression modelling of firm data, and interviews with finance directors. The results are then discussed under the key themes of gearing optimality, valuation issues, external drivers, the finance life‐cycle, the impact of risk, and the relationship between gearing and corporate strategy.FindingsThe results reveal that the majority of firms engage in targeting, though targets are subject to fairly frequent revision as both external and internal drivers evolve. Important external drivers include macroeconomic variables and analysts' views, whereas important internal drivers include income gearing and profitability.Practical implicationsGiven the range and variety of drivers, target gearing evidently represents a complex strategic decision for finance directors. The paper provides a benchmark perspective for finance directors when determining their firm's gearing strategy.Originality/valueThe innovation of the paper is the study of target gearing across three methods, the results of which are then triangulated to provide a deeper understanding of both the quantifiable and qualitative drivers of gearing. This provides a far broader insight into the real‐world determination of gearing strategy than a conventional empirical approach.

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Trade-Off and Pecking Order Theories of Debt

Cited by 329 publications

References 160 publications

Financing patterns of European SMEs – an empirical taxonomy

Financing patterns of European SMEs – an empirical taxonomy

Does Managerial Emotional Biases Affect Debt Maturity Preference? Bayesian Network Method: Evidence from Tunisia

Target gearing in the UK: a triangulated approach

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