A Study on the Efficiency of Funding Policies Considering Speed of Growth and Leverage

Corporate funding policies would result in payability (liquidity), financial stability, and firm’s market value in the end. We try to examine this kind of interest from the point of view of speed of growth or degree of leverage. We document that leverage hurts firm value in case of high growth firms while we have opposite response from low growth firms. Speed of growth is shown to affect the way by which equity and liquidity drive firm value differently, especially high growth firms are likely to be benefited by raising equity or liquidity. Again we find that, contrary to our expectation, leverage benefits and equity hurts high levered firms. Increase of current debt hurts firm value in case of high levered firms to our expectation. It is also shown that liquidity would benefit high levered firms as expected. We document that firms are desirably suggested to try to choose optimum mix of debt and equity, degree of liquidity, and weight of current debt or equity in raising funds.