An Empirical Test Of The Pecking Order

Since the MM theory was developed in the late 1950, the study on capital structure has become one of the hottest topics in the financing research field in the world. In China, with the process of reform on traditional banking system and the development of capital market, the study on capital structure has become the focus of concern for economists.China's stock market developed firstly from the planned economy, and it is still far from being perfect. In recent years, especially in the years after 2001, people severely criticize many listing companies for their large-scale "Quanqian" activities, money-cheating activities, some even think that the China's stock market has already been a meat grinder for capital.This article tries to analyze the "Quanqian" activities of the listing companies and aims to offer a demonstration of the pecking order theory in the Capital Structure theory. It consists of three parts.In the first chapter, relevant research in the field is reviewed. The author firstly briefly introduces Donaldson's contribution of finding the pecking order, then gives detailed explanation of two classic works in the field by Myers and Majluf, as well as relevantempirical test articles within China and abroad.The second chapter is the main part of this paper, The author uses 48 listing companies in the Shanghai Stock Exchange as samples, use the Sunder-Myers model to make regressive analysis between the deficit and changes of debts in those companies. Then I will go on with the Multi-factor model, make regressive analysis with profits, growth, cash dividends, and the debt rate of the company. The results of my analysis show that managers of China's listing companies do not follow the pecking order.The third chapter further discusses the reasons for the results of the second chapter, and points out some weakness of this article.