Financing hierarchy or Pecking Order Theory: Myers and Majluf’s (1984) pecking order theory assumes that a firm’s capital structure is a direct consequence of its profitability, investment needs and payout policy,which depend on how expensive it is to access capital markets. According to the pecking order theory, cash becomes available to a firm when its profits exceed its investment needs. When cash is available abundantly and the firm is confident about the profitability of its investments, then
excess cash is paid out in the form of dividends. In addition, Myers and