The pecking order hypothesis predicts that the ________ a corporation is,the more likely it will be to ________.
A) smaller and less well known; issue securities
B) larger and more well known; borrow from financial intermediaries
C) larger and more well known; issue securities
D) smaller and less well known; need external financing

Question

Quizplus · Accepted Answer

The pecking order hypothesis states that companies prefer internal financing over external financing, and if external financing is needed, they will first choose to issue securities rather than borrow from financial intermediaries. This is because larger and more well-known corporations typically have easier access to issuing securities and can do so at lower costs, whereas smaller and less well-known corporations may struggle to find buyers for their securities.

The Pecking Order Hypothesis Predicts That the ________ a Corporation