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

Nicholas Nehmzow Hjorth

Student thesis: Master thesis


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.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2015
Number of pages111