Pecking Order Theory for capital structure analysis: Application in three sectors of the Colombian economy

Abstract

This study aims to verify whether managers in the agricultural, transport and storage, and tourism and food sectors of Colombia follow a hierarchy of preferences or Pecking Order when defining the capital structure of their companies. Based on Bloomberg and EMIS, the financial statements of 1,548 firms from 2017 to 2020 were used to build three panel data analysis models with fixed effects, one per sector. The findings show a negative relationship between profitability and retained earnings with level of indebtedness in the agricultural and tourism and food sectors. They also indicate that the level of indebtedness of the tourism and food sector increased with the economic crisis generated by COVID-19, while it decreased in the agricultural sector. The conclusions suggest that in these two sectors there is a hierarchy of preferences, but not so in the transport and storage sector, where only a negative relationship with profitability is observed.