Which theory proposes that companies follow a hierarchy of financing sources?
A)Trade-off theory.
B)Reverse pecking order theory.
C)Pecking order theory.
D)Information asymmetry theory.

Question

Quizplus · Accepted Answer

Pecking order theory proposes that companies follow a hierarchy of financing sources, preferring internal funds first, followed by debt, and finally equity. This theory suggests that a company's choice of financing depends on the cost and availability of each source of funding, as well as the degree of uncertainty in the company's future cash flows. The other theories listed (trade-off theory, reverse pecking order theory, information asymmetry theory) do not specifically propose a hierarchy of financing sources.

Which Theory Proposes That Companies Follow a Hierarchy of Financing