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Corporate Financing Decisions: UK Survey Evidence

Authors

  • Vivien Beattie,

    1. The authors are, respectively, Professor of Accounting, University of Glasgow; Professor of Accounting and Finance, University of Stirling; and Lecturer, Heriot-Watt University.
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  • Alan Goodacre,

    1. The authors are, respectively, Professor of Accounting, University of Glasgow; Professor of Accounting and Finance, University of Stirling; and Lecturer, Heriot-Watt University.
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  • Sarah Jane Thomson

    Corresponding author
    1. The authors are, respectively, Professor of Accounting, University of Glasgow; Professor of Accounting and Finance, University of Stirling; and Lecturer, Heriot-Watt University.
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  • 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.

* Address for correspondence: Alan Goodacre, Department of Accounting and Finance, University of Stirling, Stirling FK9 4LA, UK.
e-mail: Alan.Goodacre@stir.ac.uk

Abstract

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.

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