Ordering the Preference Hierarchy for Internal Finance, Bank Loans, Bond and Share Issues: Evidence from Dutch Firms

Tinbergen Institute Discussion Paper No. 02-072/2

28 Pages Posted: 10 Jul 2003

See all articles by Leo de Haan

Leo de Haan

De Nederlandsche Bank

Jeroen Hinloopen

CPB Netherlands Bureau of Economic Policy Analysis; University of Amsterdam - Amsterdam School of Economics (ASE); Tinbergen Institute

Date Written: June 2002

Abstract

We estimate the incremental financing decision for a sample of some 150 Dutch companies for the years 1984 through 1997, thereby distinguishing internal finance and three types of external finance: bank borrowing, bond issues and share issues. First, we estimate a multinomial logit model which confirms several predictions of both the static trade-off theory and the pecking-order theory as to the determinants of financing choices. Next, we use ordered probit models to determine which financing hierarchy fits the data best. The results suggest that Dutch firms have a most-preferred financing hierarchy: (i) internal finance, (ii) bank loans, (iii) share issues, (iv) bonds issues.

Keywords: Corporate finance, discrete choice models, ordered financing hierarchies

JEL Classification: G32, C25

Suggested Citation

de Haan, Leo and Hinloopen, Jeroen, Ordering the Preference Hierarchy for Internal Finance, Bank Loans, Bond and Share Issues: Evidence from Dutch Firms (June 2002). Tinbergen Institute Discussion Paper No. 02-072/2. Available at SSRN: https://ssrn.com/abstract=321006 or http://dx.doi.org/10.2139/ssrn.321006

Leo de Haan (Contact Author)

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands
+31 20 5243539 (Phone)
+31 20 5242514 (Fax)

Jeroen Hinloopen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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