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We identify firms
according to two life cycle stages, namely growth and maturity, and
test the pecking order theory of financing. We find a strong
maturity effect, i.e., the pecking order theory describes the
financing behavior of mature firms better than growth firms. Our
findings show that firm maturity is an alternative proxy for debt
capacity. In particular, mature firms are older, more stable, and
highly profitable with good credit histories. Thus, they naturally
have greater debt capacity. After controlling for firm maturity, the
pecking order theory describes the financing behavior of firms
fairly well. |