Coverage of financing deficit in firms in financial distress under the pecking order theory

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dc.contributor.author Sanfilippo-Azofra, Sergio
dc.contributor.author López-Gutiérrez, Carlos
dc.contributor.author Torre-Olmo, Begoña
dc.contributor.other Ekonomická fakulta cs
dc.date.accessioned 2016-12-05
dc.date.available 2016-12-05
dc.date.issued 2016-12-05
dc.identifier.issn 1212-3609
dc.identifier.uri https://dspace.tul.cz/handle/15240/19272
dc.description.abstract The financing 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. en
dc.format.extent 104-116 s. cs
dc.language.iso en
dc.publisher Technická Univerzita v Liberci cs
dc.publisher Technical university of Liberec, Czech Republic en
dc.relation.ispartof Ekonomie a Management cs
dc.relation.ispartof Economics and Management en
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dc.rights CC BY-NC
dc.subject capital structure en
dc.subject financial distress en
dc.subject pecking order en
dc.subject.classification G32
dc.subject.classification G33
dc.title Coverage of financing deficit in firms in financial distress under the pecking order theory en
dc.type Article en
dc.publisher.abbreviation TUL
dc.relation.isrefereed true
dc.identifier.doi 10.15240/tul/001/2016-4-008
dc.identifier.eissn 2336-5604
local.relation.volume 19
local.relation.issue 4
local.relation.abbreviation E&M en
local.relation.abbreviation E+M cs
local.faculty Faculty of Economics
local.citation.spage 104
local.citation.epage 116
local.access open
local.fulltext yes


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