Abstract
Contrary to the trade-off theory, pecking order theory is based on the information asymmetry that exists between internal stakeholders (owners, managers) and external stakeholders (donors) to the company. We study firms’ financing behaviour over life cycle stages in the context of the pecking order theory. This paper is interested in testing the relation between ownership structure, the life cycle and the funding classification in French companies in the period 2005-2014. The hypotheses tested were derived from the pecking order models and analysis was conducted on data panel with econometric software Stata. The results show that the pecking order explains the debt in French companies that are in growth phase, maturity or decline.
Highlights
The pecking order theory emerges as the result of the existing information asymmetry in the financial markets
The results show that the pecking order explains the debt in French companies that are in growth phase, maturity or decline
We introduce the variable of ownership structure and we found that there isn‟t any impact of these variables on the debt
Summary
The pecking order theory emerges as the result of the existing information asymmetry in the financial markets. To the costs of emissions of new securities transactions, companies have to accept the information costs that increase with asymmetric information. In this sense, new shares issued in the capital market may be undervalued because of information asymmetry; this is especially true in the case of issuance of new shares. Managers can decide not to fund projects that dilute their capital in the company and limit subsequently their ability to act.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
