Abstract
The research aims to test the capital structure according to the pecking order theory and its dimensions (retained earnings ratio, debt ratio, common stock ratio) and their impact on the financial performance of companies. The study addresses one of the modern theories of capital structure, which is one of the most important topics that have received attention in scientific research in the field of financial management. Many theories have emerged regarding the choice of the appropriate capital structure for the company and changing its financing behavior. This research will explore the concept of each theory, focusing on the pecking order theory and its impact on financial performance, relying on data and financial statements published in the Iraq Stock Exchange for Iraqi agricultural companies. Five companies were selected based on the availability of the required data, which are (Iraqi Meat Production and Marketing, Modern Animal Production, Middle Eastern fish Production and Marketing, National Agricultural Production Company, Iraqi Agricultural Products) during the research period from 2010 to 2022. The research problem focuses on identifying the most effective ways to build a capital structure in Iraqi companies, and choosing the optimal approach in balancing between internal and external financing. It also aims to identify the most suitable sources of financing that align with the financial, economic, and political conditions in Iraq, and how these choices affect the financial performance of the companies in the study sample. The main hypothesis of the research assumes a statistically significant relationship between the variables of the first group (capital structure within the framework of the pecking order theory) and the variables of the second group (financial performance) for the companies in the study sample. The indicators used in the research represent the pecking order theory indicators (retained earnings, loans, common stock) and profitability indicators to measure financial performance, including return on assets, return on equity and profit margin. A set of statistical procedures was used to analyze the research data, using statistical description through the arithmetic mean, standard deviation, and median to obtain a preliminary statistical description. To find the correlational relationship and its significance, legal correlation analysis was used, which estimates the intertwined relationship between two groups of variables: the first group (independent variables) and the second group (dependent variables). The research concluded with several results, the most important of which is the influential relationship of the capital structure indicators according to the pecking order theory on the financial performance of the companies in the study sample. The research also presented a set of recommendations, the most important of which is to enhance financial awareness about retained earnings through workshops and introductory courses that Iraqi companies should conduct to enhance shareholders’ understanding of the importance of the retained earnings policy, as well as the optimal use of these funds by the company’s management to maximize the profitability of the company and its shareholders, relying on retained earnings as a primary source of financing.
