TY  - JOUR
AU  - Shyam-Sunder,Lakshmi
AU  - Myers,Stewart C.
TI  - Testing Static Trade-off Against Pecking Order Models of Capital Structure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4722
PY  - 1994
Y2  - April 1994
UR  - http://www.nber.org/papers/w4722
L1  - http://www.nber.org/papers/w4722.pdf
N1  - Author contact info:
Stewart C. Myers
Massachusetts Institute of Technology
Sloan School of Management
E62-620
77 Massachusetts Avenue
Cambridge, MA 02142
Tel: 617/253-6696
Fax: 617/258-6855
E-Mail: scmyers@mit.edu
AB  - 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.
ER  -