Can Equity Issuance Costs Explain the Low Leverage of High Growth Firms?
32 Pages Posted: 15 Dec 2011
Date Written: July 1, 2011
Abstract
This paper shows documents the fact that high growth firms maintain low debt levels. It then shows a dynamic model of financing and investment with costs of equity issuance rationalizes these findings. In the model firms keep debt at a level that lets them finance their investment purely from retained earnings.
Keywords: High Growth Firms, Corporate Finance, Investment, Trade-Off Model, Financing Frictions
JEL Classification: E22, G31, G32
Suggested Citation: Suggested Citation
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