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Pecking‐Order Theory Revisited: The Role Of Agency Cost

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  • KUANG‐CHENG A. WANG
  • CHUN‐HUNG A. LIN

Abstract

Considering conflicts between shareholders and managers, we revisit the external pecking order of corporate financing under conditions of information asymmetry. With the possibility that debt financing may lead a firm to bankruptcy, we find first that the external pecking order could be reversed. Second, pooling equilibria also exist in our model in two forms: debt issuance and equity issuance. Our results modify pecking‐order theory and explain some empirical findings of Jung et al. (Journal of Financial Economics, Vol. 42 (1996), pp. 159–185).

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  • Kuang‐Cheng A. Wang & Chun‐Hung A. Lin, 2010. "Pecking‐Order Theory Revisited: The Role Of Agency Cost," Manchester School, University of Manchester, vol. 78(5), pages 395-411, September.
    • Handle: RePEc:bla:manchs:v:78:y:2010:i:5:p:395-411
    DOI: 10.1111/j.1467-9957.2010.02201.x
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