Effective financial management and what character affects their capital structure are important for a firm to obtain better operational performance. A false decision about the capital structure may lead to financial distress and even to bankruptcy. Studying pecking order theory in conjunction with trade-off theory will give a more rounded exposure to optimal capital structure. An appreciation of both theories will more accurately reflect financing decision in the ''real world'' of business.
a. Explain the theory, benefits and shortcoming of the pecking order or financing hierarchy theory to evaluate a company's value.
b. Evaluate the trade-off theory against the pecking Order Theory