According to pecking order theory, in which order do companies prefer to raise finance?

Correct answer: C) Retained earnings, then debt, then new equity issues

Explanation

Pecking order theory argues that companies prefer internal funds because they involve no issue costs and send no signal to the market. If external funds are needed, debt is preferred to equity because it is cheaper to issue and because issuing new equity may signal that management believes the shares are overvalued.