Since the mid-1970s, capital structure theory
has become even more sophisticated in its explanation of why various financing regimes exist in the corporate sector.
Modern capital structure theory
evolved from the revolutionary paper of Modigliani and Miller (M&M) published in 1958.
There are a number of questions to consider, starting with: Is the current optimal capital structure theory
and knowledge deficient so that theoretical advancements are suspect and prescriptions for practice are faulty?
Awan and Amin (2014) investigate which factors affect which of 68 textile firms of Pakistan listed on Karachi Stock Exchange during 2006-2012 and which type of capital structure theory
does more prevail in textile sector of Pakistan.
However, the broad research done on the capital structure theory
, to this day, provides no conclusive answers.
However, extended investigations of capital structure theory
have not provided answers.
2007) Do Tests of Capital Structure Theory
Mean What They Say?
Knowledge of capital structure theory
and practice is important in stock repurchase programs.
In this study, we examine the capital structures of firms that emerge from the Chapter 11 reorganization process to ascertain whether the capital structures: 1) are completely reset according to capital structure theory
, 2) stem from Kahl's (2002) dynamic theory of controlled liquidation, and/or 3) reflect inefficiencies and other characteristics of the Chapter 11 process.
Because there may exist more than one proxy for the latent attributes specified by capital structure theory
as determinants of capital structure, equation (6) implies that these proxies can be expressed as linear function of one or more latent attributes plus a random measurement error.
While coverage of traditional capital structure theory
and analysis is included, the main focus is on the analysis of what companies do in practice.
This essay analyzes the theoretical evidence for the capital structure theory