Is there a high technology pecking order? An investigation of the capital structure of NTBFs in the Irish software sector

This paper examines the financing of 117 privately held new technology-based firms (NTBFs) in the Irish software product sector. We advance the high-technology pecking order hypothesis (HTPOH) to explain the dominance of external equity over debt in NTBFs. Using founders’ opinions and perceptions on various financing issues, we find evidence consistent with four implications of the HTPOH. Sample firm founders perceive low tax benefits of debt, and very high levels of business risk as reflected in pessimism about their likelihood of survival even with adequate financing. In addition, founders perceive greater information asymmetries in debt than in private equity markets. This finding is consistent with the spirit of Myers’ (1984) and Myers and Majluf’s (1984) pecking order hypothesis in that firms prefer sources of finance associated with the least information asymmetry. A related finding is that founders believe issuing equity sends a positive signal to clients, suppliers and financiers.