Which of the following best describes the pecking order theory?

Question

Quizplus · Accepted Answer

The pecking order theory suggests that companies prioritize their sources of financing (from internal financing to equity) according to the principle of least effort, or least resistance, preferring to raise equity as a financing means of last resort. Hence, retained earnings are considered the most preferable source of funds for long-term financing, as it does not involve the costs and efforts associated with issuing debt or equity.

Which of the Following Best Describes the Pecking Order Theory