Dynamic Analysis of Capital Structure in Technological Firms Based on Their Life Cycle Stages

Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, Forthcoming

30 Pages Posted: 1 Aug 2015

See all articles by Paula Castro

Paula Castro

Universidad de León

Maria T. Tascón

Universidad de León

Borja Amor-Tapia

Universidad de León

Date Written: July 30, 2015

Abstract

This paper analyzes the effect of a firm’s life cycle stages on capital structure in tech versus non-tech firms using a wide sample of public companies from Europe. An innovative approach based on operating, investing, and financing cash flows allows us to analyze differences in leverage and specify the differential role of significant drivers of capital structure across stages in both sectors. Our results point to the information asymmetry factor posed by the pecking order as the predominant driver behind the differences in the effect of intangible assets and growth opportunities for tech firms in some stages, mainly maturity. Frank and Goyal’s (2003) test of the pecking order theory confirms the lower use of debt by tech firms during all life cycle stages. In addition, we find that the results obtained for tech firms are largely attributable to the behavior of high-tech firms with the highest growth opportunities.

Keywords: Life cycle, Capital structure, Technology firms, Growth opportunities, Leverage, Pecking order theory

JEL Classification: D91, D92, G32, L6

Suggested Citation

Castro, Paula and Tascon, Maria Teresa and Amor-Tapia, Borja, Dynamic Analysis of Capital Structure in Technological Firms Based on Their Life Cycle Stages (July 30, 2015). Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2638262

Paula Castro

Universidad de León ( email )

Leon, 24071
Spain

Maria Teresa Tascon (Contact Author)

Universidad de León ( email )

Leon, 24071
Spain

Borja Amor-Tapia

Universidad de León ( email )

Leon, 24071
Spain
(+34) 987291000 (Phone)

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