Testing Static Tradeoff Against Pecking Order Models of Capital Structure: A Critical Comment

Posted: 10 Apr 2001 Last revised: 14 Mar 2011

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Anuja R. Singha

INVESCO Global Asset Management, N.A.

Abstract

In a recent paper, Shyam-Sundar and Myers (1999) introduce a new test of the Pecking Order Model. This comment shows that their elegantly simple test generates misleading inferences when evaluating plausible patterns of external financing. Our results, coupled with the power problem with the Static Tradeoff Model documented by Shyam-Sunder and Myers, indicate that their empirical evidence can evaluate neither the Pecking Order nor Static Tradeoff Models. Alternative tests are needed that can identify the determinants of capital structure and can discriminate among competing hypotheses.

Keywords: Financing; Capital structure; Pecking order theory

JEL Classification: G32

Suggested Citation

Chirinko, Robert S. and Singha, Anuja R., Testing Static Tradeoff Against Pecking Order Models of Capital Structure: A Critical Comment. Journal of Financial Economics, Vol. 58, Iss. 3, December 1, 2000. Available at SSRN: https://ssrn.com/abstract=251872

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Anuja R. Singha

INVESCO Global Asset Management, N.A. ( email )

Atlanta, GA 30309
United States

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