Volume 11 - Volume 11
Capital Structure Theories: A Comprehensive Review
Abstract
In this article the authors review almost all the preliminary and fundamental capital structure theories.
Evidently, capital structure is still an unsettled puzzle and scholars are constantly in search of those
factors that help a firm to articulate optimal capital structure. However, explained theories of capital
structure elucidate a theoretical platform for the firm’s management that assist them to select optimal
mixture of equity and debt. Therefore, the importance of these theories is not possible to ignore.
Though, academic literature has discussed various theories of capital structure but theory presented
by Modigliani Miller, Trade Off theory and Pecking Order theory are deliberated broadly. Similarly,
the other capital structure theories have their own importance in defining and explaining capital
structure choices for firms that enhance their overall financial performance. Certainly, by applying the
guideline provided by these theories a firm can easily attain a maximum profit, minimize its cost and
also boost its overall market value. This article is an attempt to discuss nearly all capital structure
theories to deliver a comprehensive explanation for the firm’s management which help them to
formulate their capital structure in accordance with theoretical guidelines.
Paper Details
PaperID: 2031
Author's Name: Muhammad Asghar Khan, Raja Rehan, Imran Umer Chhapra and Abdul Basit Sohail
Volume: Volume 11
Issues: Volume 11
Keywords: Capital Structure Theories, Modigliani Miller Theory, Trade Off theory, Dynamic Trade Off Theory, Pecking Order theory, Market Timing Theory.
Year: 2021
Month: May
Pages: 1562-1574