There is no universal theory of debt-equity choice, and there is no reason to expect one. In this essay I will critically evaluate the pecking order theory of capital structure with reference and comparison to publicly traded companies. The pecking order theory states that the firm will borrow, rather than issue stock, when internal cash flow is insufficient to finance capital expenditures. This theory explains why firms prefer internal financing rather than external financing, due to adverse selection, information asymmetry and agency costs (Frank & Goyal, 2003). Trade-off theory derives from pecking order theory and is an unintended result of companies following pecking order theory. This explains that companies strive to achieve an optimal capital structure by using a combination of debt and known equity to act as leverage. Modigliani and Miller (1958) demonstrated that the decisions that firms make when choosing between debt and equity financing have no material effect on the value of the firm or on the cost or availability of capital. They assumed perfect, frictionless capital markets, in which financial innovation would quickly extinguish any deviation from their intended equilibrium. Pecking order theory suggests that firms have a particular order of preference for capitalized to finance their activities. Stewart Myers put forward the idea of ​​pecking order theory in 1984 where managers will prefer to use retained earnings first and will only issue new shares as a last resort (Book Reference). Companies prioritize their financing sources according to the principle of least effort, preferring to raise equity capital as a means of financing of last resort. Wang & Lin (2010) how internal funds are used before debt and once...... middle of paper...... Capital, Corporation Finance and the Theory of Investment", The American Economic Review, vol. 48, no. 3, pp. 261-297.Moore, RR 1993, "Asymmetric information, repeat lending and capital structure", Journal of Money, Credit and Banking, vol 25, no. SC 2001, "Capital Structure", The Journal of Economic Perspectives, vol 15, no. 2, pp. 81-102.MYERS, SC and MAJLUF, NS, 1984. Corporate financing and investment decisions when firms have information investors have not. 187-221.Nicholls-Nixon, CL 2005, 'Rapid growth and high performance: the entrepreneur's 'impossible dream'?', Academy Of Management Executive, 19, 1, pp. 77-89 Business Elite.Wang, KA & Lin, CA 2010, "SIN ORDER THEORY REVISITED: THE ROLE OF AGENCY COSTS", Manchester School, vol.78, n.5, p.. 395.