The Financing Decision of Denmark’s Fastest Growing Private Firms: An econometric evaluation of the Static Trade-off Theory and the Pecking Order Theory

Abstract

This dissertation utilizes firm-specific financial panel data for the period 2010-2014 to investigate the capital structure of 7,387 privately owned Danish firms. The major capital structure theories of Corporate Finance are reviewed and on the basis of the Static Trade-off Theory and the Pecking Order Theory we formulate testable hypotheses. GLS regression models are developed to test these hypotheses on two data populations: i) a total population of 7,387 private Danish firms, and ii) a sub-set of 245 high-growth private Danish firms. The results of our analysis indicate support for the Pecking Order Theory within both populations, with a slightly higher support in the Total Population. Most notably, the study documents a statistically significant inverse relationship between firm profitability and financial leverage. Additional firm-specific characteristics such as asset structure, size, age, liquidity, non-debt tax shields, growth opportunities, and past growth are all correlated to the level of both total debt, short-term debt and long-term debt to a statistically significant degree. Finally, this study documents that the high-growth firms included in this study are, on average, younger, smaller, more profitable, carry a larger share of cash and cash equivalents, and invest more heavily in capital expenditure than their counterparts in the total population.