Can the Pecking Order Explain the Costs of Raising Capital?
47 Pages Posted: 7 Dec 2003
Date Written: November 11, 2004
Abstract
Using an econometric model to estimate issue costs for new external capital, I provide evidence that challenges the pecking order's predictions. Strongly counter to the pecking order, I find that debt costs often exceed equity costs, especially for firms without access to public debt. While the results suggest information asymmetry effects in the costs of raising external capital, I find no evidence that information asymmetry pushes firms toward a pecking order.
Keywords: Capital Structure, Pecking Order Theory, Transaction Costs
JEL Classification: G32
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis