The pecking order theory in the context of small and medium - sized enterprises: a note


  • Oscar Domenichelli


Capital structure, Pecking order theory, Small and medium-sized enterprises


The financial choices of SMEs clearly fit the pecking order theory (POT) for three main reasons. Firstly, SMEs undergo a problem of financial gap, in both terms of supply gap and knowledge gap. Secondly, in SMEs there is unity of interests between insiders (i.e. current shareholders and their managers who, very often, are the same individuals), as well as a high information asymmetry between insiders and outsiders (investors). Finally, owners of SMEs strongly avoid relinquishing control, even in case of rights offerings if current shareholders cannot afford to buy extra securities. There is possibility for further research which tries to empirically confirm the relevance of the POT in the context of Italian SMEs.


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