The external financing of investment

Grundy, B. D. and Verwijmeren, P. (2020) The external financing of investment. Journal of Corporate Finance, 65, 101745. (doi: 10.1016/j.jcorpfin.2020.101745)

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Abstract

This paper investigates the impact of investment characteristics on the financing choice. We investigate instances of seasoned equity, bank debt, straight non-bank debt, and convertible issues by U.S. firms where the stated use of proceeds is capital expenditure and where we are able to hand-collect and classify the characteristics of the investment. Controlling for a firm's existing assets, capital structure and valuation, we document a strong empirical link between an investment's characteristics and the choice between debt and equity financing. Factor analysis indicates that the principal determinant of the financing choice is whether an investment's payoffs can be described as a hit or miss.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Verwijmeren, Professor Patrick
Authors: Grundy, B. D., and Verwijmeren, P.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Corporate Finance
Publisher:Elsevier
ISSN:0929-1199
ISSN (Online):1872-6313
Published Online:26 September 2020
Copyright Holders:Copyright © 2020 The Authors
First Published:First published in Journal of Corporate Finance 65: 101745
Publisher Policy:Reproduced under a Creative Commons License

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