Financing Growth: Pecking Order and Determinants of Capital Structure

Abstract

This paper examines capital structure decisions among a large sample of Swedish high-growth firms. From a longitudinal ten-year data set of all active Swedish limited corporations with more than 20 employees, 1,412 high-growth firms were identified by taking the multidimensional nature of growth into account. Consistent with the predictions of the Pecking Order Theory, the evidence put forward by this paper shows that high-growth firms with internal funds are less likely to issue debt and equity while high-growth firms with limited debt capacity seem to be more likely to issue new equity. Debt capacity and the accessibility of internal funds therefore seem to influence the financing behavior among high-growth firms.