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The authors' survey of previous literature on the topic of capital structure did not reveal any study using corporate governance as a determinant of capital structure in the context of Pecking Order Theory and not a static trade off model.
As well as, this study results supports the Pecking order theory, predict the negative consequence of leverage.
Empirically, however, Fama and French (2002) and Shyam-Sunder and Myers (1999) have provided evidence where pecking order theory explained data situations better than the trade-off theory.
The pecking order theory postulates the existence of a strict hierarchy of financial resources because of information asymmetries between managers and investors (Myers & Majluf, 1984; Shyam-Sunder & Myers, 1999).
Pecking order theory states that firms use internal sources to fund growth when profits are high, predicting a negative relationship.
9) point out that "For the pecking order theory, firms with more volatile cash flows are less likely to have debt in order to lower the possibility that they will have to issue new risky securities or forego future profitable investments when cash flows are low".
On the other hand, from the position of pecking order theory, there is potential for a negative correlation between the size of the company and debt, due to lower information asymmetry between insiders from companies and investors.
However this contradicts the pecking order theory which states the negative relationship of these two variables.
For instance, in the former case, evidence for the United Kingdom by Marsh (1982) and for the United States by Friend and Lang (1988) supports the pecking order theory.
Prevalent irregularity difference with Chaos is at this point that irregularity is like turbulence of a position or situation but turbulence or final order theory is sort of systematic irregularities or regularity in irregularity [5].