Understanding Pecking Order Theory

In corporate finance, the Pecking Order Theory suggests that companies prioritize their sources of financing based on the principle of least effort or least resistance. According to this theory, a firm will first seek to use internal financing, such as retained earnings, followed by debt financing, and lastly, equity financing when external funds are needed. This theory is based on the premise that information asymmetry exists between management and investors.

Given this background, which of the following statements best reflects the implications of the Pecking Order Theory?