The pecking order theory has four suggesting ideas, which one of these is not one of them? Firms prefer to rely on retained earnings as a source of equity capital to finance assets and prospective investments. If retained earnings are insufficient to meet investment needs, the firm first draws down its holdings of cash and stock and then turns to its financial assets. When external sources of funds are contemplated the firm first considers debt or leasing, then debt is convertible to equity, and lastly new issues of equity securities Firms set aside their dividends in response to anticipated investment opportunities over the long run so that capital expenditures under normal conditions can be met by retained earnings plus depreciation