The Pecking-Order Theory Suggests That Less Profitable Firms Borrow More

question 95

Multiple Choice

The pecking-order theory suggests that less profitable firms borrow more because:

• A) equity issues are more expensive.
• B) leverage is preferred over raising funds internally.
• C) debt issues are good omens.
• D) they have insufficient internal funds.

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, providing voting rights and entitling the holder to a share of the company's success through dividends and capital appreciation.

Stockholders' Equity

The net value of a corporation's assets after paying off all debts, showcasing the share of ownership belonging to shareholders.

Revenues

The cumulative revenue a firm earns from its sales of products or provision of services over a specified period.

Selling Services

The act of offering intangible products or skills to customers in exchange for payment.