Empirical Test of Pecking Order Theory for the US Listed Firms

28 Pages Posted: 19 May 2020

See all articles by Zaur Abdullazade

Zaur Abdullazade

University of Missouri at Columbia, Department of Economics

Date Written: April 20, 2020

Abstract

This paper is aimed at examining the appropriateness of pecking order theory in the US financial market. One of the most popular models of firm’s capital structure driven by asymmetric information is the pecking order theory (POT) of Myers (1984). It is based on the argument that firms have preference ranking over sources of funds for financing based on the corresponding information asymmetry costs (Myers et al. 1984, p.15). In recent studies, many interesting discussions have been generated about the POT. These studies attempt to detect the extent to which POT describes the financing choices of firms. The results of relevant studies as well as recent evidence in the context of the US economy are presented in this research paper. Aggregated, disaggregated and controlled variable methods are employed for testing relevance of POT by using the sample of firms over three-year period. Results of the current research can help to understand how the US listed firms determine their optimal debt levels.

Keywords: Capital structure, pecking order, pecking behavior

JEL Classification: G32

Suggested Citation

Abdullazade, Zaur, Empirical Test of Pecking Order Theory for the US Listed Firms (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3583126 or http://dx.doi.org/10.2139/ssrn.3583126

Zaur Abdullazade (Contact Author)

University of Missouri at Columbia, Department of Economics ( email )

MO
United States
MO 65211 (Fax)

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