According to the Pecking Order Hypothesis,less profitable companies in an asymmetric world will need more ________; they will first seek ________ and will avoid ________.
A)external funding; equity funding; debt market
B)internal funding; the use of retained earnings; debt market
C)external funding; debt financing; equity market
D)internal funding; the use of retained earnings; equity market

Question

Quizplus · Accepted Answer

The Pecking Order Hypothesis suggests that companies prefer financing methods in a specific order due to information asymmetry between managers and investors. Less profitable companies, which face higher costs of external financing, will prioritize debt financing over equity because issuing new equity could signal to the market that the company's stock is overvalued, potentially lowering its stock price.

According to the Pecking Order Hypothesis,less Profitable Companies in an Asymmetric