Determinants of Capital structure: Pecking ordertheory. Evidence from Mongolian listed firms

Capital Structure decisions have implications for the success and survival of any firm. This paper analyzes the determinants of capital structure of Mongolian listed firms, employing accounting data from the year 2010 to 2013, of 23 firms. This study has been guided by the capital structure theory i.e. Pecking Order Theory. Pecking order theory is the main focus of this study as few studies found that firms in transitional economy do not follow the traditional pecking order theory but follow the modified pecking order theory. As in other studies, leverage in Mongolian firms decreases with profitability and liquidity. Leverage decreases with asset tangibility, this is contradicting to the predictions by the pecking order theory, however this behavior is explained by the maturity matching principle. Leverage also increases with size, this is not in line with the pecking order theory but is in line with static trade off theory. Overall Mongolian firms make use of retained earnings, when external financing is needed short term debt is preferred over long term debt, but equity is preferred over long term debt. Hence there is moderate support for modified pecking order theory in Mongolian listed firms.