SMEs capital structure: trade-off or pecking order theory: a systematic review - ScienceDirect
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How small businesses actually decide to fund themselves is a battleground between two rival theories — and a sweeping new review finally sizes up who's winning.
Pecking Order TheoryTrade-Off TheoryCapital Structure TheoryInformation Asymmetry
Theory Briefing
- A systematic Scopus review interrogates whether SMEs follow Trade-Off Theory, balancing debt tax shields against bankruptcy risk, or something else entirely.
- Pecking Order Theory predicts SMEs prefer internal funds first, then debt — fitting firms that lack easy access to public capital markets.
- The review's findings matter because misreading SME financing behavior leads to flawed policy, credit models, and lending decisions worldwide.