Testing the Pecking Order Theory of Capital Structure in FTSE 350 Food Producers Firms in United Kingdom between 2001 and 2005



Summary

This paper tests the Pecking Order Theory to see if it best explains the financing behaviour of FTSE 350 UK Food producer firms from the time period of 2001 to 2005. A multiple case study design was used. However, the study approach was retrospective in nature. The Pecking order model as proposed by Shyam-Sunder and Myers, Frank and Goyal; and Rajan and Zingales, was followed in this research. The empirical analysis of firm-year data was compared to a generalised view of the literature to enable an assessment of the commonalities and differences observed. The results suggest that although there is some form of Pecking order behaviour amongst FTSE 350 UK food producer firms, especially when it comes to managers’ preference for the different sources of finance, their financing behaviour is best explained by the trade-off theory of capital structure.


Keywords

Pecking Order Theory, Trade-Off Theory, FSTE 350 Food Sector, Capital Structure, United Kingdom