Economics · Capital Structure Theories
Statement I: Under the pecking order theory, firms prefer internal financing over external financing. Statement II: When external financing is required, firms prefer debt over equity due to information asymmetry.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Statement I is incorrect but Statement II is correct
- 2Statement I is correct but Statement II is incorrect
- 3Both statements are correct but Statement II does not explain Statement I
- 4Both statements are correct and Statement II explains Statement I✓
Correct answer
Both statements are correct and Statement II explains Statement I
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