The asymmetric effects of financing deficits and surpluses on the pecking order theory in sub-Saharan Africa

Abstract

This paper is the first to examine the asymmetric effects of financing deficits and surpluses on the pecking order financing strategies in sub-Saharan Africa. Panel data estimation techniques are carried out on a sample of 564 non-financial firms for the years 2006 to 2014. Overall, the individual country analysis reveals that equity tracks the financing deficit better than debt for firms with financing deficits. However, the categorical analysis shows that firms operating in the weakest legal environments appear to follow pecking order financing strategies. A steady decline in the magnitude of the pecking order coefficient is observed as we progress from the weakest to the strongest legal systems. In addition, significant differences in the pecking order behaviour for firms with surpluses and deficits are observed in the upper and lower categories of banking and stock market development.