Tests of optimal capital structure theory and pecking order theory using a binomial approach- a study of Swedish firms
Pecking order theoryOptimal capital structure theoryDebt-ratioFinancial decisionsSwedenManagement of enterprisesFöretagsledningManagementBusiness and Economics
This master thesis concerns whether Swedish non-financial listed firms act in accordance with the optimal capital structure theory and/or pecking order theory. The examined period is 1998-2004 and we discover that Swedish companies neither follow optimal capital structure theory nor pecking order theory. From our results we conclude that there exists no single point of the capital structure which is optimal. Rather it seems as if the optimal point lies in-between an interval from 0 to the industry average, where firms tend to be indifferent to their debt-ratios. Our results show that Swedish companies prefer internal financing followed by equity and as last choice debt issuance.