Firm Maturity and the Pecking Order Theory

31 Pages Posted: 13 Feb 2011

See all articles by Laarni T. Bulan

Laarni T. Bulan

Cornerstone Research

Zhipeng Yan

New Jersey Institute of Technology

Date Written: August 12, 2010

Abstract

We identify firms according to two life cycle stages, namely growth and maturity, and test the pecking order theory of financing. We find a strong maturity effect, i.e. the pecking order theory describes the financing behavior of mature firms better than growth firms. Our findings show that firm maturity is an alternative proxy for debt capacity. In particular, mature firms are older, more stable and highly profitable with good credit histories. Thus, they naturally have greater debt capacity. After controlling for firm maturity, the pecking order theory describes the financing behavior of firms fairly well.

Keywords: Life Cycle, Pecking Order, Capital Structure

JEL Classification: G32

Suggested Citation

Bulan, Laarni Tobia and Yan, Zhipeng, Firm Maturity and the Pecking Order Theory (August 12, 2010). Available at SSRN: https://ssrn.com/abstract=1760505 or http://dx.doi.org/10.2139/ssrn.1760505

Laarni Tobia Bulan

Cornerstone Research ( email )

Boston, MA
United States

Zhipeng Yan (Contact Author)

New Jersey Institute of Technology ( email )

United States

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