Which of the following statements is consistent with the pecking order theory?

Question

Quizplus · Accepted Answer

The pecking order theory suggests that firms will first use internal funds (retained earnings) to finance investments, followed by debt, and lastly by external equity. Within this framework, less profitable firms are more likely to rely on debt financing (as opposed to internal funds or equity) due to their limited access to internal funds and external equity. Therefore, for any given level of investment, less profitable firms will borrow more than highly profitable firms.

Which of the Following Statements Is Consistent with the Pecking