The financial support of the Centre for Business Performance of the Institute of Chartered Accountants in England and Wales and of the Carnegie Educational Trust (for Sarah Jane Thomson) is gratefully acknowledged. The contribution made by the individuals who gave freely of their time in completing the questionnaire is also greatly appreciated. Finally, the authors would like to thank the anonymous referee for the positive and constructive comments made throughout the review process.
Corporate Financing Decisions: UK Survey Evidence
Version of Record online: 17 AUG 2006
Journal of Business Finance & Accounting
Volume 33, Issue 9-10, pages 1402–1434, November/December 2006
How to Cite
Beattie, V., Goodacre, A. and Thomson, S. J. (2006), Corporate Financing Decisions: UK Survey Evidence. Journal of Business Finance & Accounting, 33: 1402–1434. doi: 10.1111/j.1468-5957.2006.00640.x
- Issue online: 2 NOV 2006
- Version of Record online: 17 AUG 2006
- (Paper received March 2004, revised version accepted September 2005. Online publication August 2006)
- capital structure;
- trade-off theory;
- pecking order theory;
- agency theory;
- institutional differences
Abstract: Despite theoretical developments in recent years, our understanding of corporate capital structure remains incomplete. Prior empirical research has been dominated by archival regression studies which are limited in their ability to fully reflect the diversity found in practice. The present paper reports on a comprehensive survey of corporate financing decision-making in UK listed companies. A key finding is that firms are heterogeneous in their capital structure policies. About half of the firms seek to maintain a target debt level, consistent with trade-off theory, but 60% claim to follow a financing hierarchy, consistent with pecking order theory. These two theories are not viewed by respondents as either mutually exclusive or exhaustive. Many of the theoretical determinants of debt levels are widely accepted by respondents, in particular the importance of interest tax shield, financial distress, agency costs and also, at least implicitly, information asymmetry. Results also indicate that cross-country institutional differences have a significant impact on financial decisions.