@techreport{NBERw4722,
 title = "Testing Static Trade-off Against Pecking Order Models of Capital Structure",
 author = "Lakshmi Shyam-Sunder and Stewart C. Myers",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "4722",
 year = "1994",
 month = "April",
 URL = "http://www.nber.org/papers/w4722",
 abstract = {This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing.  The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater explanatory power than a static trade-off model which predicts that each firm adjusts toward an optimal debt ratio.  We show that the power of some usual tests of the trade-off model is virtually nil.  We question whether the available empirical evidence supports the notion of an optimal debt ratio.},
}