Pecking order theory

In the theory of corporate capital structure and financing decisions, the pecking order theory (English Pecking Order Theory) or pecking order model was first proposed by Donaldson in 1961, and was modified by Stewart Clay Myers and Majluf Nicolas in 1984. It states that companies prioritize their sources of financing (from internal financing to equity) according to the principle of least effort, or of least resistance, and prefer to use equity as a funding source only as a last resort. Therefore, internal resources (such as retained earnings ) first used if these are depleted, debt is added, and when it no longer makes sense is to take on more debt, equity is issued.