AN EMPIRICAL-STUDY OF THE CORPORATE CHOICE AMONG COMMON-STOCK, CONVERTIBLE BONDS AND STRAIGHT DEBT - A CASH FLOW INTERPRETATION

This study develops the rationale that links a firm's financial health , measured by its cash flow components, to the type of security it off ers when raising external capital. Based on the literature associated with the pecking order hypothesis, five empirical hypotheses are prese nted. The findings show that cash flow components provide fresh insigh ts to the explanation as to why firms choose to offer debt, convertibl e bonds or common stock. The findings are consistent with the implicat ions of the financial health/pecking order hypothesis. That is, financ ially healthy firms choose more senior securities in their external fi nancing decisions.