FEM11118: ADVANCED CORPORATE
FINANCE AND GOVERNANCE
LECTURE 2
CAPITAL STRUCTURE:
PECKING ORDER THEORY
(Rival theory)
,TODAY Objective: reduce cost of raising capital
How do firms finance their investments?
Pecking order theory
Builds on (imperfection):
Information asymmetry Some people know more than others.
(This is more the way it is in the real world)
Theoretical arguments and empirical evidence on the
pecking order theory of financing, and a comparison
with the static tradeoff theory
Data analysis
2
,REQUIRED READING
Founding father of pecking order theory (might have slight preference for his own theory)
Myers, S.C., 2003. Financing of corporations. In:
Constantinides, G., M. Harris, and R. Stulz (eds.),
Handbook of The Economics of Finance: Corporate
Finance Volume 1A, Elsevier North Holland.
The focus will be on section 4.
3
FINANCE AND GOVERNANCE
LECTURE 2
CAPITAL STRUCTURE:
PECKING ORDER THEORY
(Rival theory)
,TODAY Objective: reduce cost of raising capital
How do firms finance their investments?
Pecking order theory
Builds on (imperfection):
Information asymmetry Some people know more than others.
(This is more the way it is in the real world)
Theoretical arguments and empirical evidence on the
pecking order theory of financing, and a comparison
with the static tradeoff theory
Data analysis
2
,REQUIRED READING
Founding father of pecking order theory (might have slight preference for his own theory)
Myers, S.C., 2003. Financing of corporations. In:
Constantinides, G., M. Harris, and R. Stulz (eds.),
Handbook of The Economics of Finance: Corporate
Finance Volume 1A, Elsevier North Holland.
The focus will be on section 4.
3
