Testing Pecking Order and Trade Off Models on Mining and Software Industries in Canada.

Abstract

This paper tests the two major capital structure theories; pecking order theory and trade off theory, in order to determine how the debt ratios in mining and software industries in Canada behave. We used a disaggregated and an aggregated model for the pecking order theory and a static adjustment model for the trade off theory. Our results indicate that there is weak support for the pecking order theory while the trade off theory is relevant for the software industry.