Theory of Capital Structure - a Review

Download or read book Theory of Capital Structure - a Review written by Stein Frydenberg and published by . This book was released on 2011 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is a review of the central theoretical literature. The most important arguments for what could determine capital structure is the pecking order theory and the static trade off theory. These two theories are reviewed, but neither of them provides a complete description of the situation and why some firms prefer equity and others debt under different circumstances. The paper is ended by a summary where the option price paradigm is proposed as a comprehensible model that can augment most partial arguments. The capital structure and corporate finance literature is filled with different models, but few, if any give a complete picture.