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The Static Trade-Off against the Pecking Order Hypotheses of Firms’ Capital Structure: A Survey of Testing Methodology and Proxy Variable

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  • Andriansyah, Andriansyah

Abstract

This paper presents a literature review on some proxy variables and methodologies that can be used to test two competing hypotheses on capital structure, namely the static trade-off and the pecking order hypotheses. The choice of proxy variables and methodology of research are very important in testing the hypotheses: the empirical results heavily depend on the choice. Some discussions will be presented on the choice of several important variables and their corresponding proxies. Meanwhile, some methodologies and statistical models such as sampling survey, multiple regressions, two-step regressions, co-integration, logit, probit and latent variable approach are also discussed. A mean reversion model may be used to test the static trade-off hypothesis, while co-integration analysis may be utilised to test the pecking order hypothesis.

Suggested Citation

  • Andriansyah, Andriansyah, 2009. "The Static Trade-Off against the Pecking Order Hypotheses of Firms’ Capital Structure: A Survey of Testing Methodology and Proxy Variable," MPRA Paper 105411, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105411
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    More about this item

    Keywords

    capital structure; static trade-off hypothesis; pecking order hypothesis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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