Which three of the following are motives explaining the manifestation of a pecking order in financing decisions?
A) Ordinary shares are more expensive to issue than issuing debt capital and using retained earnings.
B) The issue of equity is perceived as an act of desperation.
C) The firm does not have any more assets unpledged to use as collateral for loans.
D) Managers follow the line of least resistance with respect to communications and approval of finance promoters.

Question

Quizplus · Accepted Answer

The pecking order theory suggests firms prefer internal financing first, then debt, and issue equity as a last resort. A) reflects the cost preference, B) reflects the negative signal equity issuance sends, and D) reflects managerial preference for simpler financing options.

Which Three of the Following Are Motives Explaining the Manifestation