Testing the pecking order theory of capital structure

Murray Z. Frank, Vidhan K. Goyal

Research output: Contribution to journalArticlepeer-review

754 Scopus citations


We test the pecking order theory of corporate leverage on a broad cross-section of publicly traded American firms for 1971 to 1998. Contrary to the pecking order theory, net equity issues track the financing deficit more closely than do net debt issues. While large firms exhibit some aspects of pecking order behavior, the evidence is not robust to the inclusion of conventional leverage factors, nor to the analysis of evidence from the 1990s. Financing deficit is less important in explaining net debt issues over time for firms of all sizes.

Original languageEnglish (US)
Pages (from-to)217-248
Number of pages32
JournalJournal of Financial Economics
Issue number2
StatePublished - Feb 1 2003


  • Capital structure
  • Financing deficit
  • Pecking order theory

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