Corporate Financing Decisions: UK Survey Evidence

33 Pages Posted: 7 Dec 2006

See all articles by Vivien A. Beattie

Vivien A. Beattie

Lancaster University - Lancaster University Management School

Alan Goodacre

University of Stirling - Department of Accounting and Finance

Sarah Jane Thomson

Heriot-Watt University - School of Management and Languages

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.

Suggested Citation

Beattie, Vivien and Goodacre, Alan and Thomson, Sarah Jane, Corporate Financing Decisions: UK Survey Evidence. Journal of Business Finance & Accounting, Vol. 33, No. 9-10, pp. 1402-1434, November/December 2006, Available at SSRN: https://ssrn.com/abstract=950054 or http://dx.doi.org/10.1111/j.1468-5957.2006.00640.x

Vivien Beattie

Lancaster University - Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Alan Goodacre (Contact Author)

University of Stirling - Department of Accounting and Finance ( email )

Stirling, FK9 4LA
United Kingdom
+44 1786 467291 (Phone)
+44 1786 467308 (Fax)

Sarah Jane Thomson

Heriot-Watt University - School of Management and Languages ( email )

Division of Accountancy & Finance
Edinburgh EH14 4AS, Scotland
United Kingdom

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