According to the pecking-order theory, a firm’s leverage ratio is determined by

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According to the pecking-order theory, a firm’s leverage ratio is determined by two ways

the profitability of the firm and secondly

by equating the tax benefit of debt to the financial distress costs of debt.

[ tax benefit of debt is the tax shield that one can gain and financial distress costs of debt is the outcome of the leverage or debt that the firm has incurred due to burden of debt ]

jeff jeffy answered 2 years ago

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