Costs of capital and public issuance choice

The choices of firms raising external capital conform to standard static choice theory in that the higher the (relative) cost of an alternative-both at the overall market level and at the firm level-the less attractive is that alternative. Price elasticities of demand are smaller for more profitable and tangible firms, and larger for larger and more liquid firms. Firm fixed effects account for one-third of the explained choice variation of multiple issuers. Short-term debt is more attractive when the yield curve is steeply sloped, but the demand for equity is inelastic with respect to the market price-earnings multiple.