OVERVIEW OF CAPITAL STRUCTURE THEORY

Roshaiza Taha and Nur Azura Sanusi
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Nur Azura Sanusi: University Malaysia Terengganu, Malaysia

Studies in Business and Economics, 2014, vol. 9, issue 2, 108-116

Abstract: The aim of this paper is to provide a comprehensive review on two major theories of capital structure; pecking order theory and static-trade off theory in regard with achieving an optimal capital structure. Researchers believed bankruptcy costs, transactions costs, agency conflicts, adverse selection and taxes has been attribute as major explanations of the corporate used of debt financing which has been used as an argument in both theory. To date there is no consensus on the existing of optimal capital structure. However over the past four decades, the ability of the economists to explain the determinants of optimal capital structure has progressed significantly. In this paper, based on the review of past literature it is suggested that the determinants of capital structure is vary among firms depending on its characteristics.

Keywords: Capital structure; Pecking order theory; Static-trade off theory (search for similar items in EconPapers)
Date: 2014
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