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Pecking-Order Theory Revisited: The Role Of Agency Cost




Considering conflicts between shareholders and managers, we revisit the external pecking order of corporate financing under conditions of information asymmetry. With the possibility that debt financing may lead a firm to bankruptcy, we find first that the external pecking order could be reversed. Second, pooling equilibria also exist in our model in two forms: debt issuance and equity issuance. Our results modify pecking-order theory and explain some empirical findings of Jung et al. (Journal of Financial Economics, Vol. 42 (1996), pp. 159-185). Copyright © 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd and The University of Manchester.

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  • Kuang-Cheng A. Wang & Chun-Hung A. Lin, 2010. "Pecking-Order Theory Revisited: The Role Of Agency Cost," Manchester School, University of Manchester, vol. 78(5), pages 395-411, September.
  • Handle: RePEc:bla:manchs:v:78:y:2010:i:5:p:395-411

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    References listed on IDEAS

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