Which one of the following statements is consistent with the pecking order theory?
A) In an average year, public companies actually repurchase more shares than they sell.
B) The more profitable a company is, the less debt it tends to have.
C) All of the above.
D) None of the above.

Question

Quizplus · Accepted Answer

More general evidence also indicates that the more profitable a company is, the less debt it tends to have. Instead, this evidence is consistent with the pecking order theory. Highly profitable companies have plenty of cash on hand that can be used to finance their projects and, over time, using this cash will drive down their debt ratios. The pecking order theory is also supported by the fact that, in an average year, public companies actually repurchase more shares than they sell.

Which One of the Following Statements Is Consistent with the Pecking