Analysis of the capital structure: an empirical study of listed companies in UK
The two competing models of financial investment decisions, the trade-off and pecking order models, share many predictions of financial leverage. The former indicates that firms gradually adjust the debt-equity ratio towards an optimum. The latter predicts that external financing is driven by financ...
| Main Author: | |
|---|---|
| Format: | Dissertation (University of Nottingham only) |
| Language: | English |
| Published: |
2011
|
| Online Access: | https://eprints.nottingham.ac.uk/25244/ |
| Summary: | The two competing models of financial investment decisions, the trade-off and pecking order models, share many predictions of financial leverage. The former indicates that firms gradually adjust the debt-equity ratio towards an optimum. The latter predicts that external financing is driven by financial deficit of internal funding. The basic pecking order model seems to have more time-series explanatory power than static trade-off model. These two models are contradicting on hypothesis of leverage variation driven by some variables. This paper tests the traditional trade-off model against the pecking order model of corporate financing in UK listed firms. It is shown that this test provides mixed evidence for the dominance of these two models. |
|---|