Determinants of Capital Structure
Abstract
Decision on capital composition is a crucial decision for firms as it has major financial and profitability implications. The objective of this paper is to identify the determinants of capital structure and discuss the key theories on capital structure. The paper discusses they key theories of capital structure, providing evidence of the theory and listing its limitations. The MM theory is the foundation for the other modern theories of capital structure. The trade-off theory is an extension to MM theory relaxing the assumption of bankruptcy. Pecking order theory highlights the firm’s preference of internal cash flows as ...