Review of Financial Studies Vol. 34 No. 10 2021
Financing Corporate Growth
Abstract
Considerable research tackles the aggregate impact of debt financing. We show that equity is more important for firm growth than generally understood. A dollar of equity issuance is associated with an extra $0.93 of real assets, whereas a dollar of debt issuance is associated with an extra $0.14. Firms issue equity first, then increase real assets, and, finally, issue debt while repurchasing equity. We explain this sequence using a model in which debt is tax preferred relative to equity but is subject to limited commitment. We use the estimated model to evaluate how several government policies affect corporate growth.
- DOI
- 10.1093/rfs/hhaa133
- Volume
- 34
- Issue
- 10
- Pages
- 4926-4998
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref