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Article: Internal versus external equity funding sources and earnings response coefficients

TitleInternal versus external equity funding sources and earnings response coefficients
Authors
KeywordsEarnings Response Coefficients
Information Asymmetries
Internal And External Sources Of Equity
Issue Date2001
PublisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0924-865X
Citation
Review Of Quantitative Finance And Accounting, 2001, v. 16 n. 1, p. 33-52 How to Cite?
AbstractBecause of transactions costs and investor/manager information asymmetries, internally generated funds should be less costly than funds raised by issuing common shares. This suggests that as firms use more internal funds relative to external equity, their costs of equity capital will fall and the rate the market uses to discount unexpected earnings of such firms will be lower. We hypothesize that (1) firms having a higher proportion of internal to external equity will have larger earnings response coefficients, and (2) this effect will be magnified for high growth firms since the disparity between inside information and publicly available information about high growth firms' investment opportunities is greatest. We find support for both hypotheses using pooled and annual cross-sectional regressions after controlling for other determinants of ERCs. The results are also generally robust to alternative measures of the mix of equity funding sources and of unexpected earnings and to consideration of other factors affecting the mix of equity capital. © 2001 Kluwer Academic Publishers.
Persistent Identifierhttp://hdl.handle.net/10722/177988
ISSN
2015 SCImago Journal Rankings: 0.452
SSRN
References

 

DC FieldValueLanguage
dc.contributor.authorPark, CWen_US
dc.contributor.authorPincus, Men_US
dc.date.accessioned2012-12-19T09:41:10Z-
dc.date.available2012-12-19T09:41:10Z-
dc.date.issued2001en_US
dc.identifier.citationReview Of Quantitative Finance And Accounting, 2001, v. 16 n. 1, p. 33-52en_US
dc.identifier.issn0924-865Xen_US
dc.identifier.urihttp://hdl.handle.net/10722/177988-
dc.description.abstractBecause of transactions costs and investor/manager information asymmetries, internally generated funds should be less costly than funds raised by issuing common shares. This suggests that as firms use more internal funds relative to external equity, their costs of equity capital will fall and the rate the market uses to discount unexpected earnings of such firms will be lower. We hypothesize that (1) firms having a higher proportion of internal to external equity will have larger earnings response coefficients, and (2) this effect will be magnified for high growth firms since the disparity between inside information and publicly available information about high growth firms' investment opportunities is greatest. We find support for both hypotheses using pooled and annual cross-sectional regressions after controlling for other determinants of ERCs. The results are also generally robust to alternative measures of the mix of equity funding sources and of unexpected earnings and to consideration of other factors affecting the mix of equity capital. © 2001 Kluwer Academic Publishers.en_US
dc.languageengen_US
dc.publisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=0924-865Xen_US
dc.relation.ispartofReview of Quantitative Finance and Accountingen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectEarnings Response Coefficientsen_US
dc.subjectInformation Asymmetriesen_US
dc.subjectInternal And External Sources Of Equityen_US
dc.titleInternal versus external equity funding sources and earnings response coefficientsen_US
dc.typeArticleen_US
dc.identifier.emailPark, CW: acparkc@hku.hken_US
dc.identifier.authorityPark, CW=rp01090en_US
dc.description.naturepostprinten_US
dc.identifier.doi10.1023/A:1008336323282-
dc.identifier.scopuseid_2-s2.0-34548559936en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-34548559936&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume16en_US
dc.identifier.issue1en_US
dc.identifier.spage33en_US
dc.identifier.epage52en_US
dc.publisher.placeUnited Statesen_US
dc.identifier.ssrn24960-
dc.identifier.scopusauthoridPark, CW=37062708100en_US
dc.identifier.scopusauthoridPincus, M=7101995843en_US

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