Testing the Trade Off and Pecking Order Models of Capital Structure

Abstract

In this paper, we test two-models of capital structure by using Shyam-Sunder and Myers (1999) approach for finding the capital structure behaviour of U.K. firms, whether firms follow pecking order or trade off model. Sample size consists of 60 firms and 51 firms; observation period ranges from 1992-2012 and 1995-2012. By using panel data regression in the two-sample size and periods, empirical results show that neither model is appropriate for giving any conclusive result for the capital structure behaviour of U.K. firms.