The Pecking Order Theory and the Firm's Life Cycle
Banking and Finance Letters, Vol. 1, No. 3, 2009
Posted: 25 Feb 2010 Last revised: 19 Nov 2010
Date Written: 2009
We examine the central prediction of the pecking order theory of financing among firms in two distinct life cycle stages, namely growth and maturity. We find that within a life cycle stage, where levels of debt capacity and external financing needs are more homogeneous, and after sufficiently controlling for debt capacity constraints, firms with high adverse selection costs follow the pecking order more closely, consistent with the theory.
Keywords: Life Cycle, Pecking Order, Financing
JEL Classification: G32
Suggested Citation: Suggested Citation