Pecking order
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[edit] Pecking order of animals
Pecking order is a system of organization among a flock of poultry discovered by Thorleif Schjelderup-Ebbe in the early twentieth century. In this system, a bird pecks another bird who is of lower rank, and submits to pecking from a bird of higher rank[citation needed].
It is a basic concept in social stratification and social hierarchy that has its counterpart in other animal species as well, including humans. Among mammals and other animals, the term "dominance hierarchy" is used. Still, the term "pecking order" is often used synonymously as well, because the "pecking order" was the first studied example of the social hierarchy among animals.
The basic concept behind the establishment of the pecking order among, for example, chicken, is that it is necessary to determine who is the 'top chicken,' the 'bottom chicken' and where all the rest fit in between. Consequently, this also determines which chicken gets to eat first or which chicken gets to peck on any other chickens they want. The top chicken is one which can peck any chicken it wants. The bottom chicken is one that lets all the other chickens peck on it and stands up to none. There are chickens in the middle, who peck on certain chickens but are, in turn, pecked on by other chickens higher up on the scale.
[edit] Pecking order theory (financing decisions)
Donaldson observed that firms prefer first to finance investment with retained earnings, then, when they need outside funding, they prefer to issue debt instead of equity.
It suggests that capital structures are determined largely by the history of needs for external finance. Pecking-order theory explains negative intra-industry correlation between profitability and debt-equity ratio, and the negative share price reaction on announcement of an equity issue (i.e. information asymmetric).
[edit] References
- Pinder, S. (Jun, 2007). Financing Decisions. University of Melbourne Financial Management (333-641) lecture notes.
- Peirson, G., Brown, R., Easton, S. & Howard, P. (2003). Business Finance. North Ryde, NSW, Australia: McGraw-Hill Australia. ISBN 0-07-471439-2.
