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
Date Written: June 2002
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: Suggested Citation