Abstract
After a survey of recent developments in the micro- and macroeconomic literature in corporate finance, the paper presents empirical evidence of firms' financing decisions based on a short-term (quarterly) econometric model, fitted on French data for the period 1977–1989. The hierarchy of decisions is the following: first, firms rely on bank borrowing to finance their increased working capital requirements; then, in order to balance their overall indebtedness, they issue equities on the financial market. These results, based on cointegration tests and error correction models, tend to confirm the idea that, in the case of France, the hypothesis of an ‘over draft economy’ (as apposed to ‘financial market economy’) is no longer relevant as far as the financing of firms is concerned. Nevertheless, with the persistence of asymmetric information, financial structure matters; in particular, the debt/equity ratio plays a significat role.
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