Which form of financing do firms prefer to use first according to the pecking-order theory?
A)regular debt
B)convertible debt
C)common stock
D)preferred stock
E)internal funds

Question

Quizplus · Accepted Answer

According to the pecking-order theory, firms prefer to use internal funds (retained earnings) first to finance their operations. This is because internal funds do not require any external financing costs, and using them first can signal to investors that the company is financially sound and has steady cash flows.

Which Form of Financing Do Firms Prefer to Use First