Question

Pecking order theory indicates that the company’s managers would prefer: A. Give no signal to the...

Pecking order theory indicates that the company’s managers would prefer:

A. Give no signal to the market and use retained earnings to finance their needs

B. Give a positive signal to the market by issuing debt

C. Give a positive signal to the market by issuing equity

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Answer #1

Packing order theory is inclined towards use of the internal financing and it is always advocating that company should always use retained earning and other reserves in order to finance its business rather than taking a fresh debt or equity.

Other options are false as they state otherwise

So pecking order theory will indicate that the company manager will prefer retained earning.

Correct answer is option (A)Give no signal to the market and use retained earnings to finance their needs

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