Firm Financing Choices in a Thin, Capital Constrained Market

37 Pages Posted: 23 Jul 2012

See all articles by David J. Smith

David J. Smith

Massey University - School of Economics and Finance

Jianguo Chen

Massey University - School of Economics and Finance

Hamish D. Anderson

Massey University - School of Economics and Finance

Date Written: July 22, 2012

Abstract

This paper examines the financing choices made by New Zealand firms and the factors that influence those choices over the period 1984 to 2009. New Zealand firms are faced with relatively thin capital markets that lack scale and participation. The paper therefore provides an alternative perspective on how firms raise finance and refinance their activities. The paper finds that there are consistent trends in the financing policies of New Zealand firms, and in the factors that influence those policies, over the period examined. Key factors determining firms’ financing policies are profitability, growth, levels of indebtedness, financing deficits or surpluses, and firm size. In contrast with the United States, New Zealand firms on average issue significantly more debt than equity. However, a significant proportion of firms maintain a consistent policy over time of not issuing debt, while many firms consistently issue and repay debt but do not engage in equity financing.

Keywords: Financing policy, capital structure

JEL Classification: G32

Suggested Citation

Smith, David John and Chen, Jianguo and Anderson, Hamish D., Firm Financing Choices in a Thin, Capital Constrained Market (July 22, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2115259 or http://dx.doi.org/10.2139/ssrn.2115259

David John Smith (Contact Author)

Massey University - School of Economics and Finance ( email )

New Zealand
+64 6 3505799, ext 7386 (Phone)
+64 6 3505651 (Fax)

Jianguo Chen

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Hamish D. Anderson

Massey University - School of Economics and Finance ( email )

New Zealand

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
87
Abstract Views
1,327
Rank
576,054
PlumX Metrics