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Testing the pecking order theory: the importance of methodology

Dimitrios Vasiliou (Hellenic Open University, Patra, Greece)
Nikolaos Eriotis (National and Kapodistrian University of Athens, Athens, Greece)
Nikolaos Daskalakis (Athens University of Economics and Business, Athens, Greece)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 5 June 2009



The purpose of this paper is to show that different methodologies may lead to different implications about the validity of the pecking order theory.


Using data from Greek firms as a starting‐point, the paper first investigates whether they follow the financing pattern implied by the pecking order theory and then illustrates that conclusions concerning the pecking order should be carefully shaped by researchers, as the methodology used can be misleading. Two different information sources are used; the first is data derived from the financial statements of the Greek firms listed in the Athens Exchange, while the second comprises the answers to a detailed questionnaire.


It is shown that a negative relationship between leverage and profitability does not necessarily mean that the pecking order financing hierarchy holds. Analysis should not rely solely on the mean‐oriented regression quantitative analysis to test the pecking order theory, as it refers to a distinct hierarchy.

Research limitations/implications

Further research should focus on investigating the reasons that underlie actual firm financing.

Practical implications

The fact that the pecking order is actually a hierarchy makes research in this field more complex. Analysts should consider this special feature of the pecking order approach when analyzing the existence of the pecking order financing pattern. The methodology followed is of crucial importance in the analysis of the existence of the pecking order financing pattern.


To the authors' knowledge, this is the first paper to test the pecking order pattern of financing using simultaneously quantitative and qualitative data, and to compare results and conclusions drawn from these two different types of methodology.



Vasiliou, D., Eriotis, N. and Daskalakis, N. (2009), "Testing the pecking order theory: the importance of methodology", Qualitative Research in Financial Markets, Vol. 1 No. 2, pp. 85-96.



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