Does the Pecking Order Theory Apply to Chinese Publicly Traded Companies? Evidence from Manufacturing Sector

Abstract

The pecking order theory is one of the most crucial theories in corporate finance field. Empirical test on this theory is very common in western countries while domestic empirical study is still relatively limited in China. The majority of previous stud ies mainly concentrate in the whole capital market. Over the last decade, manufacturing sector experienced incrementally rapid development in China. The manufacturing sector not only makes critical contributions to China’s economy and society development, but also becomes key force in supporting the world economy. Thus, this article tests pecking order theory on Chinese publicly traded firms in manufacturing sector. Using a panel of 1212 observations during the period between 2013 and 2015, we draw the conclusion that there is no evidence to back up the pecking order theory. Further subsample analysis indicates that pecking order does not apply to Chinese manufacturing listed firms with both high float shares ratio and low float shares ratio.