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Q » Define pecking order theory.
06 Dec, 2025
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A » Pecking order theory in finance suggests that companies prioritize their sources of financing based on the principle of least effort or resistance. They prefer internal financing first, such as retained earnings, followed by debt, and issue equity as a last resort. This hierarchy arises due to the asymmetry of information between insiders and outsiders and aims to minimize the costs associated with external financing and potential dilution of ownership.
06 Dec, 2025
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