The Choice of External Financing Source: the Role of Company Size and Stock Liquidity

• Autorzy: Szymon Stereńczak , Jarosław Kubiak
• Języki publikacji: EN

Abstrakty

EN

This paper aims to answer whether firms of different sizes and stock liquidities differ in the choice of external sources of financing in companies listed in CEE countries. To this end the net debt issuance is regressed on the financial deficit. In regressions Pecking Order Coefficients are allowed to vary across firms with different sizes and stock liquidities. The results indicate that companies with less liquid shares prefer issuing debt to cover financial deficits more than companies with more liquid shares. This implies that stock liquidity may substitute debt issuance in alleviating the adverse effects of information asymmetry, especially in relatively small companies. This is the first study in which the relationship between liquidity and debt-equity choice is considered solely from a pecking order theory point of view. Also this is the first study in which stock liquidity effects on capital structure are studied in the CEE countries. Research results may point to the advantages of increasing the liquidity of shares which may contribute to reducing information asymmetry and thus a better allocation of resources. (original abstract)

Słowa kluczowe

EN

Financial liquidity; Debt; Business capital; External financing; Payments deficit; Enterprise size

PL

Płynność finansowa; Dług; Kapitał przedsiębiorstwa; Finansowanie zewnętrzne; Deficyt płatniczy; Wielkość przedsiębiorstwa

• Czasopismo: Economics and Business Review
• Rocznik: 2023
• Tom: 9 (23)
• Numer: nr 3
• Strony: 44--65

Twórcy

autor

Szymon Stereńczak

• Poznań University of Economics and Business

autor

Jarosław Kubiak

• Poznań University of Economics and Business

Bibliografia

• Altman, E.I., & Hotchkiss, E. (2006). Corporate financial distress and bankruptcy (3rd ed.). John Wiley & Sons. https://doi.org/10.1002/9781118267806
• Altman, E.I., & Kuehne, B.J. (2016). Credit markets and bubbles: Is the benign credit cycle over? Economics and Business Review, 2(3), 30-31. https://doi.org/10.18559/ebr.2016.3.3
• Amihud, Y. (2002). Illiquidity and stock returns: Cross-section and time series effects. Journal of Financial Markets, 5(1), 31-56. https://doi.org/10.1016/S1386-4181(01)00024-6
• Amihud, Y., & Mendelson, H. (2000). The liquidity route to a lower cost of capital. Journal of Applied Corporate Finance, 12(4), 7-25. https://doi.org/10.1111/j.1745-6622.2000.tb00016.x
• Bakri, M.A., Nordin, B.A.A., Tunde, M.B., & Theng, L.W. (2020). Moderating role of financial market development on the relationship between stock liquidity and dividend. Asian Academy of Management Journal of Accounting and Finance, 16(2), 77-99. https://doi.org/10.21315/aamjaf2020.16.2.4
• Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: Does firm size matter? Journal of Finance, 60(1), 137-177. https://doi.org/10.1111/j.1540-6261.2005.00727.x
• Belsley, D.A., Kuh, E., & Welsch, R.E. (1980). Regression diagnostics. Identifying influential data and source of collinearity. John Wiley & Sons. https://doi.org/10.1002/0471725153
• Berger, A.N., & Udell, G.F. (1998). The economics of small business finance: The role of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22(6-8), 613-673. https://doi.org/10.1016/S0378-4266(98)00038-7
• Bhama, V., Jain, P.K., & Yadav, S.S. (2015). Does firms' pecking order vary du-ring large deficits and surpluses? An empirical study on emerging economies. Procedia Economics and Finance, 30, 155-163. https://doi.org/10.1016/s2212-5671(15)01279-4
• Białek-Jaworska, A. (2017). Do Polish non-financial listed companies hold cash to lend money to other firms? Economics and Business Review, 3(4), 87-110. https://doi.org/10.18559/ebr.2017.4.6
• Butler, A.W., Grullon, G., & Weston, J.P. (2005). Stock market liquidity and the cost of issuing equity. Journal of Financial and Quantitative Analysis, 40(2), 331-348. https://doi.org/10.1017/S0022109000002337
• Chaklader, B., & Padmapriya, B. (2021). Impact of cash surplus on firm's capital structure: Validation of pecking order theory. Managerial Finance, 47(12), 1801-1816. https://doi.org/10.1108/MF-08-2020-0417
• Chan, K., Cheng, S., & Hameed, A. (2022). Investor heterogeneity and liquidity. Journal of Financial and Quantitative Analysis, 57(7), 2798-2833. https://doi.org/10.1017/S0022109022000217
• Chen, Z., Gao, K., & Huang, W. (2020). Stock liquidity and excess leverage. Finance Research Letters, 32, 101178. https://doi.org/10.1016/j.frl.2019.04.034
• Chung, K.H., & Zhang, H. (2014). A simple approximation of intraday spreads using daily data. Journal of Financial Markets, 17(1), 94-120. https://doi.org/10.1016/j.finmar.2013.02.004
• Czerwonka, L., & Jaworski, J. (2021). Capital structure determinants of small and medium-sized enterprises: Evidence from Central and Eastern Europe. Journal of Small Business and Enterprise Development, 28(2), 277-297. https://doi.org/10.1108/JSBED-09-2020-0326
• Czerwonka, L., & Jaworski, J. (2022). Capital structure and its determinants in companies originating from two opposite sides of the European Union: Poland and Portugal. Economics and Business Review, 8(1), 24-49. https://doi.org/10.18559/ebr.2022.1.3
• Dang, T.L., Ly Ho, H., Dzung Lam, C., Thao Tran, T., & Vo, X.V. (2019). Stock liquidity and capital structure: International evidence. Cogent Economics and Finance, 7, 1587804. https://doi.org/10.1080/23322039.2019.1587804
• De Jong, A., Verbeek, M., & Verwijmeren, P. (2010). The impact of financing surpluses and large financing deficits on tests of the pecking order theory. Financial Management, 39(2), 733-756. https://doi.org/10.1111/j.1755-053X.2010.01090.x
• Dutta, S.R., Sen, S.S., & Mukherjee, T. (2022). Stock liquidity and capital structure: Evidence from NSE listed top 100 non-finance Indian firms. Orissa Journal of Commerce, 43(1), 38-54. https://doi.org/10.54063/ojc.2022.v43i01.04
• Fama, E.F., & French, K.R. (2002). Testing trade-off and pecking order predictions about dividends and debt. Review of Financial Studies, 15(1), 1-33. https://doi.org/10.1093/rfs/15.1.1
• Fang, V.W., Noe, T.H., & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94, 150-169. https://doi.org/10.1016/j.jfineco.2008.08.007
• Frank, M.Z., & Goyal, V.K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2). https://doi.org/10.1016/S0304-405X(02)00252-0
• Halov, N. (2006). Dynamics of asymmetric information and capital structure. https://pages.stern.nyu.edu/~nhalov/Halov.pdf
• Hasan, I., Jackowicz, K., Kowalewski, O., & Kozłowski, Ł. (2017). Do local banking market structures matter for SME financing and performance? New evidence from an emerging economy. Journal of Banking and Finance, 79, 142-158. https://doi.org/10.1016/j.jbankfin.2017.03.009
• Ho, L., Lu, Y., & Bai, M. (2021). Liquidity and speed of leverage adjustment. Australian Journal of Management, 46(1). https://doi.org/10.1177/0312896220918913
• Jiang, F., Ma, Y., & Shi, B. (2017). Stock liquidity and dividend payouts. Journal of Corporate Finance, 42, 295-314. https://doi.org/10.1016/j.jcorpfin.2016.12.005
• Koralun-Bereźnicka, J. (2018). Firm size and debt maturity as indirect determinants of capital structure: Evidence form European panel data. Applied Economics Letters, 25(18), 1319-1322. https://doi.org/10.1080/13504851.2017.1420869
• Kumar, S., Sureka, R., & Colombage, S. (2020). Capital structure of SMEs: A systematic literature review and bibliometric analysis. Management Review Quarterly, 70, 535-565. https://doi.org/10.1007/s11301-019-00175-4
• Lipson, M.L., & Mortal, S. (2009). Liquidity and capital structure. Journal of Financial Markets, 12(4), 611-644. https://doi.org/10.1016/j.finmar.2009.04.002
• Liu, W. (2006). A liquidity-augmented capital asset pricing model. Journal of Financial Economics, 82(3), 631-671. https://doi.org/10.1016/j.jfineco.2005.10.001
• Martinez, L.B., Scherger, V., & Guercio, M.B. (2019). SMEs capital structure: Trade-off or pecking order theory: A systematic review. Journal of Small Business and Enterprise Development, 26(1), 105-132. https://doi.org/10.1108/JSBED-12-2017-0387
• Matuszak, P. (2020). What determines the scale of state ownership in enterprises? Some evidence from post-socialist countries. Economics and Business Review, 6(4), 95-117. https://doi.org/10.18559/ebr.2020.4.6
• Moritz, A., Block, J.H., & Heinz, A. (2016). Financing patterns of European SMEs-an empirical taxonomy. Venture Capital, 18(2), 115-148.
• Myers, S.C., & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. https://doi.org/10.1016/0304-405X(84)90023-0
• Nadarajah, S., Ali, S., Liu, B., & Huang, A. (2018). Stock liquidity, corporate governance and leverage: New panel evidence. Pacific-Basin Finance Journal, 50, 216-234. https://doi.org/10.1016/j.pacfin.2016.11.004
• Nehrebecka, N., & Dzik-Walczak, A. (2018). The dynamic model of partial adjustment of the capital structure. Meta-analysis and a case of Polish enterprises. Zbornik Radova Ekonomskog Fakultet au Rijeci, 36(1), 53-79. https://doi.org/10.18045/zbefri.2018.1.55
• Neville, C., & Lucey, B.M. (2022). Financing Irish high-tech SMEs: The analysis of capital structure. International Review of Financial Analysis, 83, 102219. https://doi.org/10.1016/j.irfa.2022.102219
• Nguyen, T., Alpert, K., & Faff, R. (2021). Relative bond-stock liquidity and capital structure choices. Journal of Corporate Finance, 69, 102026. https://doi.org/10.1016/j.jcorpfin.2021.102026
• Nguyen, T.D.K., & Ramachandran, N. (2006). Capital structure in small and medium-sized enterprises: The case of Vietnam. ASEAN Economic Bulletin, 23(2), 192-211.
• Petersen, M.A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1), 435-480.
• Pham, T.P., Singh, H., & Vu, V.H. (2023). The impact of bank loan announcements on stock liquidity. International Review of Economics and Finance, 86, 848-864. https://doi.org/10.1016/j.iref.2023.02.009
• Qu, W., Wongchoti, U., Wu, F., & Chen, Y. (2018). Does information asymmetry lead to higher debt financing? Evidence from China during the NTS reform period. Journal of Asian Business and Economic Studies, 25(1), 109-121. https://doi.org/10.1108/jabes-04-2018-0006
• Rashid, A., & Mehmood, H. (2017). Liquidity and capital structure: The case of Pakistani non-financial firms. Economics Bulletin, 37(2), 675-685.
• Shen, C.H. (2014). Pecking order, access to public debt market, and information asymmetry. International Review of Economics and Finance, 29, 291-306. https://doi.org/10.1016/j.iref.2013.06.002
• Shyam-Sunder, L., & Myers, S.C. (1999). Testing static tradeoff against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219-244. https://doi.org/10.1016/S0304-405X(98)00051-8
• Stereńczak, S., & Kubiak, J. (2022). Dividend policy and stock liquidity: Lessons from Central and Eastern Europe. Research in International Business and Finance, 62, 101727. https://doi.org/10.1016/j.ribaf.2022.101727
• Stiglitz, J.E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393-410.
• Wang, X., & Wei, S. (2021). Does the investment horizon of institutional investors matter for stock liquidity? International Review of Financial Analysis, 74, 101648. https://doi.org/10.1016/j.irfa.2020.101648

Identyfikatory

DOI

https://doi.org/10.18559/ebr.2023.3.800