In this paper, we examine the differences in information asymmetry, financing patterns and the validity of a generalized version of the trade-off theory across countries with different institutional environments. We find that firms in Civil law countries have higher information asymmetry, rely more on internally generated funds, and use more short-term debt to finance their financing deficit, relative to those in Common law countries. The results also show that, in both Civil law and Common law countries, factors suggested by the trade-off theory explain the financing deficit coefficient in the generalized model. This implies that adverse selection costs and debt capacity factors are not overwhelmed by those that determine the optimal leverage in the trade-off theory. In other words, the pecking order theory and the trade-off theory are not mutually exclusive.