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c[circlecopyrt]Review of Quantitative Finance and Accounting, 25: 341355, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.JAVIER S ANCHEZ-VIDALDpto. de Economa Financiera y Contabilidad, Facultad de Ciencias de la Empresa, Universidad Polit
ecnica de
Cartagena, Paseo Alfonso XIII, 50, 30203 Cartagena (Murcia)E-mail: [email protected] FRANCISCO MARTIN-UGEDODpto. de Organizaci
on de Empresas y Finanzas, Facultad de Economa y Empresa, Universidad de Murcia,
Campus de Espinardo, s/n, 30100 Murcia, Tel: +34 968363837, Fax: +34 968367537E-mail: [email protected]. This paper analyses some of the empirical implications of the pecking order theory in the Spanish
market using a panel data analysis of 1,566 firms over 19942000. The results show that the pecking order theory
holds for most subsamples analyzed, particularly for the small and medium-sized enterprises and for the highgrowth and highly leveraged companies. It is also shown that both the more and the less leveraged firms tend to
converge towards more balanced capital structures. Finally, we observe that firms finance their funds flow deficits
with long term debt.Key words: capital structure, pecking order theory1. IntroductionA prime contribution on information asymmetry in capital structure theory is the Myers and
Majluf (1984) model. Myers and Majluf observe that the empirical evidence is not consistent
with a financial policy that is determined by a trade-off of the advantages and disadvantages
of market imperfections, mainly taxes, costs of financial distress, and agency costs. Rather,
companies financial policies seem to be better explained by the behaviour described by
Donaldson (1961). He establishes a hierarchy described by company preference for internal
funds over external funds; in the case of external funds, a company prefers debt first, then
hybrid instruments like convertible bonds, and finally equity issues. This hierarchy, broadly
characterized as pecking order theory, indicates that companies do not make financing
decisions with the aim of achieving optimal leverage.Although they tend to be taken as the same thing, the pecking order theory and the
Myers and Majluf (1984) model are not strictly speaking the same. The pecking order
theory is merely a description of companies financing policy, while the Myers and Majluf
work represents the first model that attempts to describe this behaviour from a theoretical
point of view, based on the presence of information asymmetry. Moreover, the Myers andCorresponding author.Financing Preferences of...