Pecking order theory
You'll learn why companies choose certain funding sources over others, and how the pecking order theory explains this preference hierarchy.
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In this lesson
- 0:00 Pecking order theory explained
- 0:05 Funding preference hierarchy
- 0:28 Complete pecking order sequence
About this lesson
This theory shows that firms prioritise retained earnings first, then debt, convertibles, preference shares, and finally ordinary equity—regardless of their overall cost of capital impact. Understanding pecking order theory is essential for Financial Management (FM) and Advanced Financial Management (AFM), where you'll analyse how real companies structure their financing decisions. Master this concept to confidently explain corporate funding choices in exam scenarios and professional practice.
Duration: 1m
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