Abstract
The present study tests the pecking order of firms at varying debt levels. The findings indicate that deficit firms at low debt levels raise significant amounts of debt, thus indicating the adherence to the pecking order theory. Deficit firms (from both countries) at exceptionally high debt levels do not adjust their capital structure by issuing less debt. In a surplus situation, Chinese firms at very high level redeem the substantial debt because of the dominance of short-term debt in their capital structure. In contrast, Indian surplus firms hesitate to redeem more debt if their existing debt levels are extremely high. JEL Classification: Q14, G32
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