The Testing Of Pecking Order Theory For Behavior Financing In The Company's Life Stage

Ode Sumail, Rezky Arianty Akob

Abstract


The diversity of behavior financing occurs in companies listed on the Indonesian capital market and still leaves debate on theoretical assumptions so that the researchers are motivated to do this research. This research aims to investigate the behavior financing of each stage of the company's life, specifically for young, mature and waning ages as the repressentations of Pecking Order Theory (POT) financing behavior. The object of this research is a manufacturing company that is listed Indonesian capital market at least 3 years after the IPO and has a complete financial performance report. The results of the regression analysis results  behavior of sales growth, profitability behavior, dividend behavior, retained earnings behavior, free cash flow behavior, risk behavior, size behavior and financial leverage behavior, shows various behaviors in each stage of the company's life. Behavior financing at the young and waning stages tends to favorPOTbehavior rather than trade-off behavior financing. In the mature stage, the behavior of profitability, retained earnings,FCF, and size do not supportPOTbehavior tends to lead to trade-off financing behavior.


Full Text:

PDF

References


Adair, P., & Adaskou, M. (2015). Trade-off theory vs. Pecking order theory and the determinants of corporate leverage: Evidence from a panel data analysis upon french SMEs (2002–2010). Cogent Economics and Finance, 3(1), 1–12. http://doi.org/10.1080/23322039.2015.1006477

Agyei, J., Sun, S., & Abrokwah, E. (2020). Trade-Off Theory Versus Pecking Order Theory: Ghanaian Evidence. SAGE Open, 10(3). http://doi.org/10.1177/2158244020940987

Ahsan, T., Wang, M., & Qureshi, M. A. (2016). Mean Reverting Financial Leverage and Firm Life Cycle: Theory versus Evidence (Pakistan). Emerging Economy Studies, 2(1), 19–26. http://doi.org/10.1177/2394901515627750

Al-Hadi, A., Hasan, M. M., & Habib, A. (2016). Risk Committee, Firm Life Cycle, and Market Risk Disclosures. Corporate Governance: An International Review, 24(2), 145–170. http://doi.org/10.1111/corg.12115

Bhama, V., Jain, P. K., & Yadav, S. S. (2018). Relationship between the pecking order theory and firm’s age: Empirical evidences from India. IIMB Management Review, 30(1), 104–114. http://doi.org/10.1016/j.iimb.2018.01.003

Bhama, V., Jain, P. K., & Yadav, S. S. (2019). Pecking Order Test at Varying Debt Levels: A Comparative Study of Indian and Chinese Firms. Journal of Emerging Market Finance, 18(2), 237–261. http://doi.org/10.1177/0972652719846317

Bhat, D. A., Chanda, U., & Bhat, A. K. (2020). Does Firm Size Influence Leverage? Evidence from India. Global Business Review, (2002). http://doi.org/10.1177/0972150919891616

Bin Khidmat, W., Wang, M., & Awan, S. (2019). The value relevance of R&D and free cash flow in an efficient investment setup. Asian Journal of Accounting Research, xxx(xxx), xxx–xxx. http://doi.org/10.1108/ajar-10-2018-0035

Bravo, S. (2019). The corporate life cycle and the cost of equity. Journal of Business Valuation and Economic Loss Analysis, 14(1), 1–14. http://doi.org/10.1515/jbvela-2018-0009

Buus, T. (2015). A general free cash flow theory of capital structure. Journal of Business Economics and Management, 16(3), 675–695. http://doi.org/10.3846/16111699.2013.770787

Castro, P., Tascón Fernández, M. T., Amor-Tapia, B., & de Miguel, A. (2016a). Target leverage and speed of adjustment along the life cycle of European listed firms. BRQ Business Research Quarterly, 19(3), 188–205. http://doi.org/10.1016/j.brq.2016.01.003

Castro, P., Tascón Fernández, M. T., Amor-Tapia, B., & de Miguel, A. (2016b). Target leverage and speed of adjustment along the life cycle of European listed firms. BRQ Business Research Quarterly, 19(3), 188–205. http://doi.org/10.1016/j.brq.2016.01.003

Chen, X., Sun, Y., & Xu, X. (2016). Free cash flow, over-investment and corporate governance in China. Pacific Basin Finance Journal, 37(13), 81–103. http://doi.org/10.1016/j.pacfin.2015.06.003

Danis, A., Rettl, D. A., & Whited, T. M. (2014). Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), 424–443. http://doi.org/10.1016/j.jfineco.2014.07.010

Deangelo, H., & Deangelo, L. (2006). Dividend policy and the earned / contributed capital mix : a test of the life-cycle theory. Journal of Financial Economics, 81(xxx), 227–254. http://doi.org/10.1016/j.jfineco.2005.07.005

Deangelo, H., & Deangelo, L. (2010). Seasoned equity offerings , market timing , and the corporate lifecycle. Journal of Financial Economics, 95, 275–295. http://doi.org/10.1016/j.jfineco.2009.11.002

Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. Accounting Review, 86(6), 1969–1994. http://doi.org/10.2308/accr-10130

Ghose, B., & Kabra, K. C. (2020). Does Growth Affect Firms’ Leverage Adjustment Speed? A Study of Indian Firms. Business Perspectives and Research, 8(2), 139–155. http://doi.org/10.1177/2278533719887002

Haddad, K., & Lotfaliei, B. (2019). Trade-off theory and zero leverage. Finance Research Letters, 31(April), 165–170. http://doi.org/10.1016/j.frl.2019.04.011

Hasan, M. M., & Habib, A. (2017). Firm life cycle and idiosyncratic volatility. International Review of Financial Analysis, 50(xxx), 164–175. http://doi.org/10.1016/j.irfa.2017.01.003

Hsu, F. J. (2018). Does corporate social responsibility extend firm life-cycles? Management Decision, 56(11), 2408–2436. http://doi.org/10.1108/MD-09-2017-0865

J. Glover, K., & Hambusch, G. (2014). The trade-off theory revisited: on the effect of operating leverage. International Journal of Managerial Finance, 10(1), 2–22. http://doi.org/10.1108/IJMF-03-2013-0034

Kaur, J. (2019a). Firm’s Life Cycle Spurs the Dividend Payments: A Fallacy or an Actuality? Paradigm, 23(1), 36–52. http://doi.org/10.1177/0971890719835630

Kaur, J. (2019b). Firm’s Life Cycle Spurs the Dividend Payments: A Fallacy or an Actuality? Paradigm, 23(1), 36–52. http://doi.org/10.1177/0971890719835630

Kwon, S., Ahn, J. H., & Kim, G. H. (2021). The impact of shareholder intervention on overinvestment of free cash flow by overconfident CEOs. International Review of Financial Analysis, 75(December 2019), 1–18. http://doi.org/10.1016/j.irfa.2021.101751

Meza, N., Báez, A., Rodriguez, J., & Toledo, W. (2020). The dividend signaling hypothesis and the corporate life cycle. Managerial Finance, 46(12), 1569–1587. http://doi.org/10.1108/MF-10-2019-0512

Mnisi, K. P., & Alhassan, A. L. (2021). Financial structure and cooperative efficiency: A pecking-order evidence from sugarcane farmers in Eswatini. Annals of Public and Cooperative Economics, 92(2), 261–281. http://doi.org/10.1111/apce.12295

Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48, 261–297.

Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53, 433–443

Morais, F., Serrasqueiro, Z., & Ramalho, J. J. S. (2020). The zero-leverage phenomenon: A bivariate probit with partial observability approach. Research in International Business and Finance, 53(xxx)1-21. http://doi.org/10.1016/j.ribaf.2020.101201

Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 574–592. http://doi.org/10.1111/j.1540-6261.1984.tb03646.x

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. http://doi.org/10.1016/0304-405X(84)90023-0

Naranjo, P., Saavedra, D., & Verdi, R. S. (2020). The Pecking Order and Financing Decisions: Evidence From Changes to Financial-Reporting Regulation. Journal of Accounting, Auditing and Finance, xxx(xxx) 1-24. http://doi.org/10.1177/0148558X20945066

Omar, R., Lim, K. Y., & Basiruddin, R. (2014). Board of directors and small medium enterprise ’ s firm growth with firm culture as moderating factor in Malaysia. Procedia - Social and Behavioral Sciences, 164(August), 315–323. http://doi.org/10.1016/j.sbspro.2014.11.082

Pai, P. F., Hsu, M. F., & Lin, L. (2014). Enhancing decisions with life cycle analysis for risk management. Neural Computing and Applications, 24(7-8), 1717–1724. http://doi.org/10.1007/s00521-013-1411-1

Park, K., & Jang, S. (Shawn). (2013). Capital structure, free cash flow, diversification and firm performance: A holistic analysis. International Journal of Hospitality Management, 33, 51–63. http://doi.org/10.1016/j.ijhm.2013.01.007

Pham, H. S. T., & Nguyen, D. T. (2020). The effects of corporate governance mechanisms on the financial leverage–profitability relation: Evidence from Vietnam. Management Research Review, 43(4), 387–409. http://doi.org/10.1108/MRR-03-2019-0136

Roma, C. M. D. S., Louzada, L. C., Roma, P. M. D. S., Goto, H., & Souma, W. (2020). Earnings management, policy uncertainty and firm life cycle stages: evidence from publicly traded companies in the USA and Brazil. Journal of Financial Economic Policy, 13(3), 371–390. http://doi.org/10.1108/JFEP-02-2020-0031

Shahzad, F., Fareed, Z., Wang, Z., & Shah, S. G. M. (2020). Do idiosyncratic risk, market risk, and total risk matter during different firm life cycle stages? Physica A: Statistical Mechanics and Its Applications, 53(7), 1–18. http://doi.org/10.1016/j.physa.2019.122550

Shahzad, F., Lu, J., & Fareed, Z. (2019). Does firm life cycle impact corporate risk taking and performance? Journal of Multinational Financial Management, 51(xxx), 23–44. http://doi.org/10.1016/j.mulfin.2019.05.001

Sheikh, N. A., & Qureshi, M. A. (2017). Determinants of capital structure of Islamic and conventional commercial banks: Evidence from Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 24–41. http://doi.org/10.1108/IMEFM-10-2015-0119

Sumail, L. O., & Akob, R. A. (2021). Financial Performance Behavioral in the Company Life Cycle. Jurnal Keuangan Dan Perbankan, 25(4), 906–930. http://doi.org/10.26905/jkdp.v25i4.6273

Tavassoli, S. (2015). Innovation determinants over industry life cycle. Technological Forecasting and Social Change, 91, 18–32. http://doi.org/10.1016/j.techfore.2013.12.027

Wang, K., Miao, Y., Chen, M. H., & Hu, D. (2019). Philanthropic giving, sales growth, and tourism firm performance: An empirical test of a theoretical assumption. Tourism Economics, 25(6), 835–855. http://doi.org/10.1177/1354816618809260




DOI: https://doi.org/10.26905/jkdp.v26i3.7607

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0