Which of the following is correct?

1. According to the pecking order theory, a firm prefers debt to equity for financing, because equity does not provide tax shields.
2. According to the pecking order theory, a profitable firm should borrow more because the firm has a lot of cash flows and suffers less from financial distress.
3. According to the trade-off theory, the optimal debt level may vary across different firms.
4. The trade-off theory helps to explain why average debt ratio of US public firms do not change compared to decades ago when taxation has changed a lot.