Do tests of capital structure theory
mean what they say?
(2017), "Capital structure theory
: reconsidered", Research in International Business and Finance, Vol.
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?
Nevertheless, despite the extensive research that has been conducted on capital structure theory
, to this day, no conclusive answers have been drawn.
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, 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.
Cross-sectional regressions of debt ratios suggest that observed postemergence capital structures are only partially consistent with the predictions of the static trade-off capital structure theory
. Moreover, unlike Gilson, we find that post-reorganization debt ratios are positively related to pre-reorganization debt ratios, suggesting that the debt is sticky.
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.