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| Author: | Rocca, M. La Rocca, T. La Cariola, A. |
| Title: | Capital structure decisions during a firm's life cycle |
| Journal: | Small business economics
2011 : JUL, VOL. 37:1 p. 107-130 |
| Index terms: | finance capital structure of companies decision making industries small business debt life cycles |
| Freeterms: | corporations |
| Language: | eng |
| Abstract: | This study examines the financing choices of small and medium-sized firms, the most vulnerable ones to information and incentive issues, in the business life cycle point of view. We argue that the dispute in the empirical literature regarding the capital structure decision determinants is based on not taking into account the different degrees of information opacity, and, consequently, firms' characteristics and needs at certain stages of their life cycles. The results imply that, in a bank-oriented country firms have a tendency to adopt specific financing strategies and a different hierarchy of financial decision-making as they progress through the stages of their business life cycle. Contrary to conventional wisdom, debt is proven to be fundamental to business activities in the early phases, representing the first choice. In the maturity stage, firms re-balance their capital structure, gradually substituting debt for internal capital, and for firms having consolidated their business, the pecking-order theory shows a high rate of application. This financial life-cycle pattern appears to be homogeneous for various industries and consistent over time. |
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