This paper and its sequel (Financial Leverage Strategy with Transaction Costs, Applied Mathematical Finance 3, 1996, 191-208) pick up the pecking order leverage theory where it was left in 1984 by Stewart Myers (JF v.39) and his joint paper with Nicolas Majluf (JFE v.13). Static tradeoff...

This is a sequel to our paper Pecking Order as a Dynamic Leverage Theory, European Journal of Finance 4, 1998, 157-183. Here we offers a class of diffusion models that mimic the firm's pecking order behavior and are designed to optimize an intertemporal leverage strategy under a more complex...