Financing strategically: The moderation effect of marketing activities on the bifurcated relationship between debt level and firm valuation of small and medium enterprises

This study argues that debt can be strategically issued by governing its interpretations from investors. In particular, we pay attention to the signaling aspects of debt financing, and conjecture that firms purposefully determine the level of debt issuance, which can affect firm valuation. Also, we argue that the bifurcated or diverged roles of debt are moderated by marketing activities, as a way to treat the stakeholders’ evaluation of the firm. This idea is empirically examined in a population of SMEs (Small- and Medium-sized Enterprises) in the U.S. stock market. Using a sample of 2174 U.S. public firms ranging from 1982 to 2010, we find resource-independent debt (called idiosyncratic debt) has diverged impacts on firm valuation and the marketing moderation of such relationship is also bifurcated.