In a survey on managers' perceptions of capital structure,it was found that their reluctance to issue new ordinary shares appeared to vary over time,depending on the recent price behaviour of the company's shares.This evidence is consistent with:

Question

Quizplus · Accepted Answer

The managers' reluctance to issue new ordinary shares varying based on recent price behavior suggests that they follow the pecking order theory, which states that managers prefer to issue debt and use internal sources of finance first before equity, as equity issuance signals the company's shares are overvalued, potentially leading to a drop in share prices. Therefore, the observed behavior is not consistent with the tax deductibility of interest or the financial distress theory, which relates to the level of debt a company uses, nor any other theory of capital structure that doesn't consider market behavior or share price fluctuations.

In a Survey on Managers' Perceptions of Capital Structure,it Was