Question

According to the pecking order theory, debt financing and internal financing are superior to equity financing, but we know that many great companies are public companies, such as Apple and Google. Therefore, going public must have some benefits beyond this theory. Please use some listed companies you are familiar with to illustrate the benefits of equity financing. In addition to the goal of raising money, how can these companies benefit from going public? As far as you know, do companies in your country follow the pecking order theory to raise funds for selected investments?

Answer 1

Pecking theory is more of a traditional approach and it is not highly followed in the real world because a lot of the companies are listing them self into the markets because it helps in getting quick money from public and by selling of its ownership.

Equity ownership is not that highly risky to the firm because it does not have any kind of obligation that is associated with them because dividend payments are not obligatory in nature, so equity financing is a kind of safe borrowing channel for firm which would just lead to dissolution of the overall control of the form in order to raise money from the market.

Equity financing is also not related with high level of risk and high level of terms and conditions so there are not default risk associated with those equity financing so firm does not generally follows pecking order in the real world.

No, in my country companies do not follow with this theory and a lot of them are already listed and lot of them are lined up for the listing because they believe in creating wealth for the public through getting listed.