Article2007

How Costly Is External Financing? Evidence from a Structural Estimation

Christopher A. Hennessy · Toni M. Whited

1,148 citations0/0 files storedThe Journal of Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

ABSTRACT We apply simulated method of moments to a dynamic model to infer the magnitude of financing costs. The model features endogenous investment, distributions, leverage, and default. The corporation faces taxation, costly bankruptcy, and linear‐quadratic equity flotation costs. For large (small) firms, estimated marginal equity flotation costs start at 5.0% (10.7%) and bankruptcy costs equal to 8.4% (15.1%) of capital. Estimated financing frictions are higher for low‐dividend firms and those identified as constrained by the Cleary and Whited‐Wu indexes. In simulated data, many common proxies for financing constraints actually decrease when we increase financing cost parameters.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 1,148 citations exist upstream.

References

1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 1997Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?1988Financing Constraints and Corporate Investment 1995Firms, Contracts, and Financial Structure 1987Financing Constraints and Corporate Investment 2004The Cash Flow Sensitivity of Cash

Cited by

2013Corporate social responsibility and access to finance 2009Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom 2016Intangible capital and the investment-q relation 2013Do Peer Firms Affect Corporate Financial Policy?2014Finance and Misallocation: Evidence from Plant-Level Data 2012The Collateral Channel: How Real Estate Shocks Affect Corporate Investment

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.