The Application of Pecking Order Theory in the West and China

The pecking order theory in the western developed market economies has been sufficiently validated, but there is "abnormal pecking order" phenomenon in China’s listed companies. The reason is that China’s market economy is imperfect, and the cost of equity is lower. Local government has given a lot of policies and tax incentives, and the cost of equity financing is too low which leads to the result that pecking order can not be achieved. China should follow the appropriate laws and regulations to take the industry regulatory instruments and set industry barriers to some industries. Therefore, several companies whose aggregate demand is relatively optimal can not form oligopoly. Furthermore, we should set the industry barriers to realize a reasonable allocation of resources.