French Firm’s Financing Choices: Towards a Reconciliation of the Static Trade-Off Theory and the Pecking Order Theory?

Abstract

The main purpose of this study is to examine the validity of the statictrade-off theory and the pecking order theory using a French paneldata. Our empirical tests provide that we can not formally rejecteither of the two theories explaining financing behavior. However,they confirm the importance of considerations provided by the statictrade-off theory. On the contrary, when we combine the adjustmentmodel and the pecking order model we find that the statistical powerof the hierarchical model is improved and the choice of financingof French firms confirms the greatest explanatory power of the peckingorder hypotheses.