• Vithoba S
• CMA Dr. Jeelan Bash V

The pecking order theory of capital structure suggests that firms follow a hierarchy in financing decisions, preferring internal funds over debt and using equity as a last resort. This study aimed to examine whether this theory holds true for select Indian firms by analysing the relationship between financing deficits and changes in debt levels. The objective was to validate whether firms increase debt in response to financing shortfalls, as posited by the theory. The analysis was based on data from twenty firms, incorporating key financial variables such as net income, depreciation, capital expenditures, changes in working capital, and dividends. The financing deficit was computed and regressed against changes in debt using a simple linear regression model. Descriptive statistics, correlation analysis, and diagnostic tests were conducted to assess the relationship and the robustness of the model. The results revealed a weak positive correlation between financing deficit and changes in debt, suggesting partial support for the pecking order theory. The regression coefficient was positive, but not statistically significant, and the R-squared value was low, indicating that the model explained only a small portion of the variation in debt levels. Diagnostic tests highlighted issues with non-normality and mild autocorrelation in residuals, although no heteroscedasticity was observed. The findings suggest that while firms tend to prefer debt over equity when facing financing deficits, other factors also influence their capital structure decisions. This underscores the need to consider firm-specific conditions and broader market dynamics in financial decision-making.

Capital structure, Pecking order theory, Financing deficit, Debt issuance, Corporate finance

"TESTING THE PECKING ORDER THEORY OF CAPITAL STRUCTURE: EVIDENCE FROM SELECT INDIAN COMPANIES", International Journal of Emerging Technologies and Innovative Research (www.jetir.org), ISSN:2349-5162, Vol.12, Issue 8, page no.138-143, August-2025, Available :http://www.jetir.org/papers/JETIRHB06028.pdf

"TESTING THE PECKING ORDER THEORY OF CAPITAL STRUCTURE: EVIDENCE FROM SELECT INDIAN COMPANIES", International Journal of Emerging Technologies and Innovative Research (www.jetir.org | UGC and issn Approved), ISSN:2349-5162, Vol.12, Issue 8, page no. pp138-143, August-2025, Available at : http://www.jetir.org/papers/JETIRHB06028.pdf