Abstract:

This  paper  examines  the  industry  impact  on  financing  corporate  growth. According  to  underinvestment  and overinvestment  problems,  rms  are  more  likely  to have less debt capacity in their growth stage of life cycle. However, it is known that new economy  firms  have  higher  levels  of  growth  rate,  return  and  risk,  and  particularly undertake more  technical  projects.  Therefore,  I  test  the  hypothesis  that  debt  capacity during the growth stage of life cycle is affected by New Economy. My empirical analysis covers U.S.  companies  listed on NYSE, AMEX and NASDAQ in the period  of  1990-2010.  I  find  that  growth  firms  have  significantly  smaller  debt  capacity.  Nevertheless, supporting the  life  cycle  theory  of  financing  that  emphasizes  the  adverse  selection problem faced by new economy firms, this link tends to be less prominent in the new economy  industry.  The  results  complement  prior  studies  that  have  found significant relationship  between  firm  growth  and  corporate  debt  capacity  by  confirming  the important role played by the industry membership (New Economy) in  determining  the intensity of this relation.