Volume : III, Issue : VII, July - 2014

Traditional Trade–off V/S Pecking Order, Which is a Better Theory?

Mostafa Hashemi Tilehnouei, B. Shivaraj

Abstract :

Core objective of each firm is to maximize the firm value by selecting the projects with positive net present value and lowest cost of capital. Of course capital structure of firm is a critical element for firms to maximize their value. The purpose of this study is to examine financing behavior of Indian firms and to investigate that which theory of capital structure is better in explaining financing behavior of Indian firms and whether financing behavior of firms operating in India as a developing country and emerging economy is in accordance with financing behavior of developed countries or not. Two main theories of capital structure in this paper are tested: the traditional trade-off theory and the pecking order theory. Results suggest that the pecking order theory rather than the traditional trade-off theory is better in explaining the financing behavior of Indian companies. Results of this paper are consistent with the results for most of the developed countries.

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Article: Download PDF   DOI : 10.36106/ijsr  

Cite This Article:

MOSTAFA HASHEMI-TILEHNOUEI, B. SHIVARAJ Traditional Trade-off V/S Pecking Order,Which is a Better Theory? International Journal of Scientific Research, Vol : 3, Issue : 7 July 2014

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