Pecking Order Theory in International Contexts: Insights from Hong Kong Listed Chinese Enterprises

Abstract

This research extends the Pecking Order Theory to an international business setting, providing novel insights into corporate finance within a global context. The study posits that firms prioritize internal financing through retained earnings before seeking external financing, such as debt or equity. By integrating attributes of internationalization, this research examines how the degree of internationalization of multinational firms influences their financing decisions, with a focus on the moderating role of international business factors. Analyzing data from 785 companies listed on the Hong Kong main board from 2010 to 2020, the study reveals that the breadth of internationalization supports the traditional pecking order, while the depth of internationalization encourages a reverse pecking order. Legal distance negatively moderates this relationship, while the structure of the financial system has a positive moderating effect. The findings suggest that multinational enterprises (MNEs) with greater overseas resource allocation exhibit enhanced flexibility in financing decisions, particularly in foreign markets with robust investor protection and efficient direct finance mechanisms.