This paper tests the pecking order theory of corporate leverage using a broad cross-section of publicly traded American firms from 1971 to 1998. The pecking order theory suggests that firms prefer internal financing over external financing and, when external financing is needed, prefer debt over equity. The theory predicts that the financing deficit should be matched dollar-for-dollar by changes in corporate debt. However, the evidence does not support this prediction. Net equity issues track the financing deficit more closely than net debt issues. Large firms exhibit some aspects of pecking order behavior, but the evidence is not robust to the inclusion of conventional leverage factors or the analysis of evidence from the 1990s. Financing deficit is less important in explaining net debt issues over time for firms of all sizes. The pecking order theory is not broadly applicable, as evidenced by the rejection of the theory in the 1990s. The theory performs best among large firms with long uninterrupted trading records, but not among small high-growth firms. The results suggest that the pecking order theory is not a comprehensive explanation of corporate financing behavior. The paper also finds that the financing deficit does not wipe out the effects of conventional variables, and that the pecking order theory is not the only possible explanation of corporate leverage. The results indicate that the pecking order theory is not a robust explanation of corporate financing behavior.This paper tests the pecking order theory of corporate leverage using a broad cross-section of publicly traded American firms from 1971 to 1998. The pecking order theory suggests that firms prefer internal financing over external financing and, when external financing is needed, prefer debt over equity. The theory predicts that the financing deficit should be matched dollar-for-dollar by changes in corporate debt. However, the evidence does not support this prediction. Net equity issues track the financing deficit more closely than net debt issues. Large firms exhibit some aspects of pecking order behavior, but the evidence is not robust to the inclusion of conventional leverage factors or the analysis of evidence from the 1990s. Financing deficit is less important in explaining net debt issues over time for firms of all sizes. The pecking order theory is not broadly applicable, as evidenced by the rejection of the theory in the 1990s. The theory performs best among large firms with long uninterrupted trading records, but not among small high-growth firms. The results suggest that the pecking order theory is not a comprehensive explanation of corporate financing behavior. The paper also finds that the financing deficit does not wipe out the effects of conventional variables, and that the pecking order theory is not the only possible explanation of corporate leverage. The results indicate that the pecking order theory is not a robust explanation of corporate financing behavior.