TY - JOUR
T1 - The external financing of investment
AU - Grundy, Bruce D.
AU - Verwijmeren, Patrick
N1 - Publisher Copyright:
© 2020 The Author(s)
PY - 2020/12
Y1 - 2020/12
N2 - This paper investigates the impact of investment characteristics on the financing choice. We investigate instances of seasoned equity, bank debt, straight non-bank debt, and convertible issues by U.S. firms where the stated use of proceeds is capital expenditure and where we are able to hand-collect and classify the characteristics of the investment. Controlling for a firm's existing assets, capital structure and valuation, we document a strong empirical link between an investment's characteristics and the choice between debt and equity financing. Factor analysis indicates that the principal determinant of the financing choice is whether an investment's payoffs can be described as a hit or miss.
AB - This paper investigates the impact of investment characteristics on the financing choice. We investigate instances of seasoned equity, bank debt, straight non-bank debt, and convertible issues by U.S. firms where the stated use of proceeds is capital expenditure and where we are able to hand-collect and classify the characteristics of the investment. Controlling for a firm's existing assets, capital structure and valuation, we document a strong empirical link between an investment's characteristics and the choice between debt and equity financing. Factor analysis indicates that the principal determinant of the financing choice is whether an investment's payoffs can be described as a hit or miss.
KW - Convertible securities
KW - Debt-equity choice
KW - Financing
KW - Investment characteristics
UR - http://www.scopus.com/inward/record.url?scp=85092060328&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2020.101745
DO - 10.1016/j.jcorpfin.2020.101745
M3 - Article
SN - 0929-1199
VL - 65
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101745
ER -