There are some issues about how companies consider their financing.
These issues are related to the amount, source, type, and the structure
of such financing. So far, there is no uniform model that is able to
explain how companies deal with these issues. There are three competing,
dominant theories of financing decision making, i.e. the Pecking Order
Theory, the Static Trade-off Theory, and the Agency Model Theory. This
study attempts to explore which theory explains the best way for
companies in the consumer industry to decide their financing method.
There are five hypotheses to be tested in this study. Using data from
public listed companies on the Indonesian Stock Exchange from 2008 to
2011, it seems that the Agency Model Theory is more dominant than the
other two theories in explaining the way companies fulfill their
financing needs.