The pecking order hypothesis states that firms make their capital structure decisions by following a pecking order based on transaction costs: 1) Changes in trade credit; 2) New debt; 3) Internal financing through net income and cash & marketable securities; 4) New equity O 1) Internal financing through net income and cash & marketable securities; 2) Changes in trade credit: 3) New debt; 4) New equity O 1) Changes in trade credit; 2) Internal financing through net income and cash & marketable securities: 3) New debt: 4) New equity O 1) Internal financing through net income and cash & marketable securities: 2) Changes in trade credit: 3) New equity: 4) New debt