References (41)



Corporate Funding: Who Finances Externally?

B. Espen Eckbo

Dartmouth College - Tuck School of Business; European Corporate Governance Institute (ECGI)

Michael Kisser

Norwegian School of Economics (NHH)

March 28, 2013

Tuck School of Business Working Paper No. 2012-110

We document a surprising reliance on internal finance among eleven thousand U.S. public industrial companies over the past quarter-century. Pooling all sources of cash, the median contribution from net debt issues (above debt repurchases) is zero for the period, and two percent for equity issues. Fifty-six percent of the firms issue positive net debt at most twice over the quarter-century. As predicted, low-frequency issuers exhibit significantly higher fixed direct issue costs than low-frequency issuers. After the IPO year, debt issues are overwhelmingly rollovers, supporting a relatively stable average leverage ratio. In an average year, firms raise twelve percent of total funds externally, but the top two hundred issuers receive eighty-four percent of the total net debt issue proceeds. We also discover that funding decisions differ significantly in response to positive and negative net operating cash flows. Negative operating cash flow triggering primarily equity issues. However, in years with positive operating cash flow, the correlation between debt issues and profitability is positive, which helps resolve a long-standing capital structure puzzle.

Number of Pages in PDF File: 66

Keywords: Capital structure, external finance, debt issues, equity issues, issue costs, leverage, cash-flow identity

JEL Classification: G32

working papers series

Download This Paper

Date posted: March 17, 2013 ; Last revised: March 29, 2013

Suggested Citation

Eckbo, B. Espen and Kisser, Michael, Corporate Funding: Who Finances Externally? (March 28, 2013). Tuck School of Business Working Paper No. 2012-110. Available at SSRN: http://ssrn.com/abstract=2234435 or http://dx.doi.org/10.2139/ssrn.2234435

Contact Information

B. Espen Eckbo (Contact Author)
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)
HOME PAGE: http://www.tuck.dartmouth.edu/eckbo
European Corporate Governance Institute (ECGI)
B-1050 Brussels
Michael Kisser
Norwegian School of Economics (NHH) ( email )
Helleveien 30
Bergen, 5045
Feedback to SSRN

Paper statistics
Abstract Views: 1,186
Downloads: 318
Download Rank: 50,867
References:  41

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.391 seconds