Do Firms Have Financing Preferences Along Their Life Cycles? Evidence from Iberia

Abstract

Building on the biological concept of a life cycle, the paper analyzes the issue of the strategic financing choice of firms through the lens of the life cycle framework. Using data for the 1994-2003 period, from a sample of Iberian firms the paper investigates 379 start-ups (789 firm year observations) and 2 325 firms (19 647 firm year observations) distributed by the other three phases of the life cycle model adopted for the study.Univariate results document that the debt ratio increases over the life cycle of firms. This empirical finding is consistent with the conjecture that firms tend to adopt specific financing strategies as they progress along the phases of their life cycles.We found evidence that can be interpreted as consistent with a pecking order model of financing. Findings also indicate that the theory that short-term debt may have a role in firm strategic financing choice. A significant industry effect for all variables included in the analysis was found as well.Overall, findings provide support to the notion that the design of financing strategy is influenced, among other factors, by asymmetric information considerations, and growth opportunities.