earticle

영어

This study examines the relative importance of various forms of capital in financing investments by using two methodologies: (i) seemingly unrelated regression (SUR) and (ii) quantile regression (QR). The SUR results suggest that, among external sources of capital, long-term debt plays the most important role in financing capital expenditures of Korean firms, while equity issuance plays a less role. The QR results indicate that, among all forms of capital, cash flows contribute most to financing investments at almost all investment levels. Overall, our evidence is consistent with both the first and second rungs of the financing hierarchy. Subgroup analyses also show that large firms and Chaebolaffiliated firms use more long-term debt but less equity issuance than comparison firms do, suggesting that debt capacity allows firms to reduce the use of equity issuance (i.e., an expensive form of capital according to the pecking order theory).