The idea that managers who perceive the firm's equity is underpriced will have a preference to fund investment using retained earnings,or debt,rather than equity is known as the:

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The pecking order hypothesis suggests that managers prefer to use internal funds such as retained earnings, followed by debt, and then equity as a last resort. This is because the issuance of new equity may signal to the market that the firm's management believes its stock is overpriced, which could have a negative impact on the firm's stock price. The signaling theory of debt and the lemons principle are other theories related to financing decisions, but they do not specifically address the preference for retained earnings and debt over equity. The credibility principle is not a well-known theory in finance.

The Idea That Managers Who Perceive the Firm's Equity Is