The Pecking Order Explanation of Capital Structure States That a Hierarchy

question 65

True/False

The pecking order explanation of capital structure states that a hierarchy of financing exists for firms, in which new external debt financing is employed first, followed by retained earnings and finally by external equity financing.

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Definitions:

Physical Existence

The actual, tangible presence of an asset, as opposed to intangible assets or rights.

External Audit

An independent examination of financial records and statements, conducted by an outside firm, to ensure accuracy and compliance with accounting standards.

Financial Statements

Official documentation detailing the monetary transactions and financial standing of a company, person, or different organization.

Credibility

The quality of being trusted and believed in, important in financial reporting and accounting practices.