Test of Pecking Order Theory - Empirical evidence from Europe

Abstract: This paper tests the pecking order theory of corporate leverage on a representative sample of publicly traded European firms, between 2006 and 2018, and further investigates differences between financing deficits and surpluses as well as differences between sectors. Similar research in the area does not find evidence supporting the pecking order theory for publicly traded American firms. The pecking order theory is rejected when testing European firms but shows a significant difference between financing deficits and financing surpluses as well as differences between sectors.