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A Test Of The Pecking Order Theory Of Capital Structure In Corporate Finance

Author

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  • Ali Shakil Khan
  • Awang Yusop Adom

Abstract

This paper utilises a cross section of 12,244 publicly traded corporations in the U.S. from the time period 1999 to 2009 to test the pecking order theory of capital structure. Applying the methodology of Frank and Goyal (2003), limited evidence to support pecking order theory is found. Consistent with Frank and Goyal (2003), a much stronger relationship between net equity issued and financing deficit is observed than net debt issuance and financing deficit. Whereas, the pecking order theory suggests that firms should exhaust all debt issuing capacity before they issue any equity and equity should only be used as a last resort.

Suggested Citation

  • Ali Shakil Khan & Awang Yusop Adom, 2015. "A Test Of The Pecking Order Theory Of Capital Structure In Corporate Finance," Accounting & Taxation, The Institute for Business and Finance Research, vol. 7(2), pages 43-49.
    • Handle: RePEc:ibf:acttax:v:7:y:2015:i:2:p:43-49
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    More about this item

    Keywords

    Pecking Order Theory; Capital Structure; Financing Deficit;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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