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Why Pecking Order Theory Should Be Included In Introductory Finance Courses, Thomas J. Liesz

Mountain Plains Journal of Business and Technology

The majority of students majoring in various business administration emphases take only one finance course (Introductory Financial Management) while completing the requirements of their degrees. A primary topic commonly covered in most introductory finance courses is capital structure, with a discussion that often culminates with a discussion of optimal capital structure. Invariably the leading textbooks present optimal capital structure within the framework of the agency cost/tax shield trade-off model that evolved from Modigliani and Miller’s capital structure irrelevance hypothesis. While this approach has solid grounding in value maximization arguments and capital market equilibrium theory, it nonetheless fails to explain several …