Gradation of Financing and the Role of the type of Financing in Influencing the Growth of Sales at Each Stage: A Study of the Companies in India and Usa
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Abstract
Pecking order theory predicts the gradation of financing of the companies but it does not explain how this gradation affect the growth of sales at each stage. The growth of sales which is possible by the prevalent type of financing at each stage is found out and the excess is attributed to the financing possible next; if Growth of sales possible by internal financing is found out then the excess Growth of sales is attributed to three other types, short-term debt, long-term debt and equity. The determinants of Growth of sales at each stage is found out Further these are analysed in the context of two countries, India and USA. Short-Term debt is found to influence Growth of sales in India whereas as in USA it is not a significant determinant when a firm reaches the level of long-term debt; it is not a significant determinant in the Growth of Sales in India and USA. The reasons behind this may the difference in the agency cots of short-term debt and long-term debt and difference in information asymmetry of short-term debt and long-term debt