The long-term financing decision process: a comparative study of the views and practices of CFOs

Abstract

This paper reports the findings of a survey conducted in 2005 to study the practices related to the financing decisions of the Chief Financial Officers (CFOs) of the largest firms that operate in Portugal. The results of research confirm similar practices with European and American CFOs, as well as significant differences in the most important determinants of debt decisions. The results show the predominance of the pecking-order theory over the trade-off theory and the importance of banking sector variables as the main determinants of financing decision. The results also reveal the use of a systematic process of the evaluation of funding sources based on financial models and the current practice of risk hedging. On the other hand, the results also confirm the lack of interest in obtaining equity capital from going public and difficulties in the fulfilment of the admission requirements to the stock exchange by Portuguese firms.