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Why do Firms Issue Equity?

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  • Saumitra Bhaduri

Abstract

In contrast to the existing empirical research on the pecking order hypothesis which has been largely confined to the United States and a few other advanced countries, this article attempts to test the hypothesis for an emerging economy through a case study of the Indian corporate sector. A well diverse sample of 556 manufacturing firms over the period 1997–2007 is used in the article to test the pecking-order hypothesis. The study finds strong evidence in favour of the pecking-order hypothesis—a result that stands startlingly odd against the most recent evidence against the pecking-order theory in developed countries (Fama and French 2005; Frank and Goyal 2003; Leary and Roberts 2004; Lemmon and Zender 2004). JEL Classification: G32

Suggested Citation

  • Saumitra Bhaduri, 2015. "Why do Firms Issue Equity?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(1), pages 59-85, April.
    • Handle: RePEc:sae:emffin:v:14:y:2015:i:1:p:59-85
    DOI: 10.1177/0972652714567996
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    Cited by:

    1. Bipin Sony & Saumitra Bhaduri, 2018. "Information Asymmetry and Debt–Equity Choice: Evidence from an Emerging Market, India," Review of Market Integration, India Development Foundation, vol. 10(3), pages 228-252, December.
    2. Sony, Bipin & Bhaduri, Saumitra, 2021. "Information asymmetry and financing choice between debt, equity and dual issues by Indian firms," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 90-101.
    3. Indrani Chakraborty, 2020. "Debt financing and market concentration in an emerging economy: firm-level evidence from India," Economic Change and Restructuring, Springer, vol. 53(3), pages 451-474, August.
    4. Bipin Sony & Saumitra Bhadurib, 2020. "Information asymmetry and the choice between rights issue and private placement of equity," BASE University Working Papers 01/2020, BASE University, Bengaluru, India.

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    More about this item

    Keywords

    Pecking order; capital structure; emerging economy; India;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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