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What are the assumptions and predictions of the pecking order theory? Why do empirical studies generally...

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Finance

What are the assumptions and predictions of the pecking ordertheory? Why do empirical studies generally find in a negativeabnormal stock return upon the announcement of an equityissue?

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Introduction of Pecking Order theory Pecking order theory of capital structure states that firms have a preferred hierarchy for financing decisionsThe highest preference is to use internal financing retained earnings and the effects of depreciation before resorting to any form of external fundsInternal funds incur no flotation costs and require no additional disclosure of proprietary financial information that could lead to more severe market discipline and a possible loss of competitive advantageIf a firm must use external funds the preference    See Answer
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What are the assumptions and predictions of the pecking ordertheory? Why do empirical studies generally find in a negativeabnormal stock return upon the announcement of an equityissue?

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