This paper extends the basic pecking order model of Shyam-Sunder and Myers (1999) by separating the effects of financing surpluses, normal deficits, and large deficits. Using a panel of U.S. firms over 1971-2005, we find that the estimated pecking order coefficient is highest for surpluses...

This paper tests the static tradeoff theory against the pecking order theory. We focus on an important difference in prediction: the static tradeoff theory argues that a firm increases leverage until it reaches its target debt ratio, while the pecking order yields debt issuance until the debt...

The static tradeoff theory of capital structure predicts that firms aim to approach a target debt ratio. The theory provides several firm characteristics that determine this target ratio. In contrast, the pecking order model rejects a target debt ratio, because firms are expected to finance...