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What is Pecking-Order Theory

Chapter 3
Valuation Challenges and Solutions in Contemporary Businesses
A theory of capital structure which suggests that firms first use retained earnings to finance their capital investments, and in case of insufficient internal resources, firstly they prefer to finance with debt, then with hybrid securities and, finally, with equity.
Published in Chapter:
Optimal Capital Structure for Maximizing the Firm Value
Rumeysa Bilgin (Istanbul Sabahattin Zaim University, Turkey)
Copyright: © 2020 |Pages: 19
DOI: 10.4018/978-1-7998-1086-5.ch003
Abstract
Capital structure decisions of management affect the value of a firm. This fact leads to the creation of an extremely rich capital structure literature over the last 60 years. This chapter explains main theories of capital structure and discusses the concept of target leverage which maximizes the firm value. The roles of tax payments, profitability, firm size, asset tangibility, growth opportunities, income volatility, and non-debt tax shields are examined as determinants of capital structure. The current status of capital structure research and some important empirical issues are discussed. Considerations for future research are presented.
Full Text Chapter Download: US $37.50 Add to Cart
More Results
Chapter 1
The Financial Development of Portuguese Entrepreneurial Businesses
Pecking-order theory maintains that businesses adhere to a hierarchy of financing sources and prefer internal financing when available, and that debt is preferred over equity if financing is external.
Published in Chapter: The Financial Development of Portuguese Entrepreneurial Businesses; From: Handbook of Research on Entrepreneurial Success and its Impact on Regional Development
Full Text Chapter Download: US $37.50 Add to Cart
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