Capital Structure and Firm Growth Investment Decisions and Financial Management in Listed Companies Dissertation zur Erlangung des Doktorgrades „Dr. rer. pol.“ der Fakultät für Wirtschaftswissenschaften der Universität Duisburg-Essen vorgelegt von Laura Gerke-Teufel aus Viersen, Deutschland Betreuer: Prof. Dr. Rainer Elschen Lehrstuhl für Finanzwirtschaft und Banken Essen, 2018 Gutachter: Prof. Dr. Rainer Elschen; Prof. Dr. Ansgar Belke Tag der mündlichen Prüfung: 02.07.2019 Table of Contents List of Figures ....................................................................................................... IV List of Tables ......................................................................................................... V List of Abbreviations ............................................................................................ VII Introduction ............................................................................................................. 1 a) Problem Statement: Capital Structure Theory, Research Results and Research Gaps .............................................................................................. 1 b) Research Questions and Research Design .................................................. 3 c) Thesis Structure and Research Contribution ................................................ 6 1. Theories and Models ......................................................................................... 7 1.1 Capital Structure Theory .............................................................................. 7 1.1.1 Neo-Classical Financing Theory ........................................................... 9 1.1.2 Neo-Institutional Theories of Finance ................................................. 11 1.1.3 Research Gaps .................................................................................... 16 1.2 Firm Growth Theories ................................................................................ 17 1.2.1 Growth as a Stochastic Process ......................................................... 22 1.2.2. Growth as a Result of Firm-Specific Resources................................ 23 1.2.3 Growth as a Result of Microeconomics and Management ................ 24 1.2.4 Lifecycle and Evolutionary Patterns of Growth................................... 30 1.2.5 Growth as a Result of Learning and Firm-Specific Knowledge ......... 33 1.3 Growth Metrics Issues................................................................................ 34 2. Results of Prior Empirical Research................................................................ 37 2.1 High-Growth Firm and Success Factors Research ................................... 37 2.1.1 High-Growth Firm Research ............................................................... 37 2.1.2 Findings of Success-Factors Research among Medium-Sized Larger Growth Companies ............................................................................. 41 2.2 Empirical Findings in the Field of Leverage-Performance Research ....... 44 2.2.1 Negative or Neutral Relationship between Leverage and Firm Performance ....................................................................................... 44 2.2.2 Positive Relationship between Leverage and Firm Performance ...... 46 2.2.3 Non-Linear Relationship between Leverage and Firm Performance 49 2.2.4 Other Factors explaining Capital Structure......................................... 50 2.3 Discussion of Prior Research Results ....................................................... 54 2.4 Summary of Theory and Empirical Research Results and Research Design Conclusions .................................................................................. 56 3. Research Design ............................................................................................. 58 3.1 Research Philosophy ................................................................................. 59 3.2 Research Methodology .............................................................................. 63 3.3 Basic Research Model ............................................................................... 66 3.4 Data Set and Variables .............................................................................. 71 3.4.1 Performance Indicators and other Related Firm Characteristics ....... 75 3.4.2 Investment Activities Indicators ........................................................... 82 3.5 Statistical Analysis Methods ...................................................................... 87 3.5.1 Bivariate and Regression Analysis ..................................................... 87 3.5.2 T-Test ................................................................................................... 88 4. Empirical Analysis ............................................................................................ 89 4.1 Descriptive Statistics (Sample and Groups) .............................................. 90 4.1.1 Sample Statistics ................................................................................. 90 4.1.2 Distribution of Debt-to-Capital Ratio Values in the Sample ............... 95 4.1.3 Descriptive Statistics of the High-Growth Group (n = 79) ................ 100 4.1.4 High-Equity-Financed Companies Group Descriptive Statistics ...... 108 4.1.5 High-Debt-Financed Companies Group Statistics ........................... 111 4.2 Significant Differences between High-Equity-Financed and High-Debt- Financed Companies (T-Test) ................................................................ 114 II 4.3 Causal Explanation of Group Differences between Capital-Structure- Groups (Logistic Regression) ................................................................. 117 4.4 Debt-to-Capital Ratio Regression of the Capital-Structure Groups ........ 120 5. Discussion, Conclusions, and Recommendations ........................................ 124 5.1 Summary of Results ................................................................................. 124 5.1.1 Sample ............................................................................................... 124 5.1.2 Growth Groups .................................................................................. 125 5.1.3 Capital-Structure Groups .................................................................. 125 5.2 Conclusions and Recommendations ....................................................... 127 5.2.1 Empirical Conclusion ......................................................................... 127 5.2.2 Theoretical Conclusions .................................................................... 129 5.3 Management and Governance Recommendations ................................ 130 5.4 Limitations and Research Recommendations ......................................... 130 Annex ................................................................................................................. 132 References ......................................................................................................... 164 Affidavit ............................................................................................................... 203 III List of Figures Figure 1. Development Stages of Capital Structure Theory ............................... 14 Figure 2. PIMS Growth Drivers ............................................................................ 28 Figure 3. Lifecycle Stages and Performance ...................................................... 31 Figure 4. Berger and Udell’s Financial Growth Lifecycle Model ......................... 53 Figure 5. Finance-based View of the Firm .......................................................... 70 Figure 6. Revenue Growth Box Plot (Sample) .................................................... 93 Figure 7. Debt-to-Capital Ratios Histogram (Sample) ........................................ 97 Figure 8. Debt-to-Capital 10-Year Average Values Box Plot (Sample) ............. 98 IV List of Tables Table 1. Overview of Data Analysis Methods ....................................................... 6 Table 2: Firm Growth Models .............................................................................. 20 Table 3: Firm Growth Indicators of Selected Research ...................................... 35 Table 4: Research Growth Indicators .................................................................. 36 Table 5. Results of Selected Recent High-Growth Studies ................................ 39 Table 6. Indicators and Variables of Selected Recent High-Growth Studies ..... 40 Table 7. Variable Set and Description ................................................................. 74 Table 8. Descriptive Statistics (Sample) ............................................................. 92 Table 9. Distribution of Debt-to-Capital Ratio Values (Sample) ......................... 96 Table 10. Debt-to-Capital Ratio Percentile Statistics (Sample) .......................... 97 Table 11. Debt-to-Capital Ten-Year Average (Sample) ..................................... 99 Table 12. High-Growth Group’s Descriptive Statistics ...................................... 104 Table 13. Companies Included in the High-Growth Group ............................... 105 Table 14. Acquisition-to-Revenue Ratio in the High-Growth Group(Top 10).. 107 Table 15. High-Equity-Financed Companies Group Statistics ......................... 110 Table 16. High-Debt-Financed Companies Group Statistics ............................ 113 Table 17.