A Dynamic View on the Financing of Extreme Growth Companies

Babson College Entrepreneurship Research Conference (BCERC) 2006

Frontiers of Entrepreneurship Research 2006

14 Pages Posted: 11 Feb 2009 Last revised: 16 Dec 2009

See all articles by Tom R. Vanacker

Tom R. Vanacker

Ghent University; University of Exeter Business School

Sophie Manigart

Vlerick Business School; Ghent University

Date Written: January 21, 2009

Abstract

This paper researches the determinants of financing decisions of extreme growth companies. For this purpose, we use a longitudinal dataset, free of survivorship bias, covering the financing events of extreme growth companies for up to eight years. Results are generally consistent with the extended pecking order theory. Profitable companies are more likely to use internal finance, while they have unused debt capacity, which is contrary to the predictions of the static trade-off theory. External equity is used as a last resort. Nearly 20% of the firms issuing external equity have a negative shareholders' equity in the previous year. Finally, consistent with the static trade-off theory, companies with a higher probability and costs of financial distress and higher agency costs are more likely to issue external equity financing.

Keywords: Entrepreneurship

JEL Classification: M13

Suggested Citation

Vanacker, Tom R. and Manigart, Sophie, A Dynamic View on the Financing of Extreme Growth Companies (January 21, 2009). Babson College Entrepreneurship Research Conference (BCERC) 2006; Frontiers of Entrepreneurship Research 2006. Available at SSRN: https://ssrn.com/abstract=1331051 or http://dx.doi.org/10.2139/ssrn.1331051

Tom R. Vanacker (Contact Author)

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

University of Exeter Business School ( email )

Streatham Court
Exeter, EX4 4JH
United Kingdom

Sophie Manigart

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

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