Investment Spike Financing

This article presents one of the most comprehensive studies to date to employ filtering techniques to distinguish between routine and “investment spike” financing. This study records marked differences in how publicly traded US firms finance the two types of investments. The funding of investment spikes depends particularly on external, predominantly debt, financing. Smaller, less profitable firms with greater growth opportunities, fewer tangible assets, and larger R&D expenditures use more equity finance. The results are observed consistently across industries but vary over business cycles, by firm types, and between acquisitions and capital expenditures. These results have important implications for existing corporate finance theories.