Do Firms Have Financing Preferences Along Their Life Cycles? Evidence from Iberia

35 Pages Posted: 9 Mar 2005 Last revised: 4 Feb 2014

See all articles by Gabriela Teixeira

Gabriela Teixeira

PriceWaterhouseCoopers LLP

Mário Coutinho dos Santos

Catholic University of Portugal; CICEE - Research Center in Business & Economics

Date Written: February 2014


Building on the biological concept of a life cycle, the paper analyzes the issue of the strategic financing choice of firms through the lens of the life cycle framework. Using data for the 1994-2003 period, from a sample of Iberian firms the paper investigates 379 start-ups (789 firm year observations) and 2 325 firms (19 647 firm year observations) distributed by the other three phases of the life cycle model adopted for the study.

Univariate results document that the debt ratio increases over the life cycle of firms. This empirical finding is consistent with the conjecture that firms tend to adopt specific financing strategies as they progress along the phases of their life cycles.

We found evidence that can be interpreted as consistent with a pecking order model of financing. Findings also indicate that the theory that short-term debt may have a role in firm strategic financing choice. A significant industry effect for all variables included in the analysis was found as well.

Overall, findings provide support to the notion that the design of financing strategy is influenced, among other factors, by asymmetric information considerations, and growth opportunities.

Keywords: Financing policy, Asymmetric and private information, Capital structure

JEL Classification: C31, D82, G32

Suggested Citation

Teixeira, Gabriela and Coutinho dos Santos, Mário João, Do Firms Have Financing Preferences Along Their Life Cycles? Evidence from Iberia (February 2014). Available at SSRN: or

Gabriela Teixeira

PriceWaterhouseCoopers LLP

1301 Avenue of the Americas
New York, NY 10019
United States

Mário João Coutinho dos Santos (Contact Author)

Catholic University of Portugal ( email )


CICEE - Research Center in Business & Economics ( email )


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