Literature Review and Evaluation of Western Capital Structure Theory

Yuan Yue

《Frontiers in Economics and Management》 2卷10期 (2021/10) Pp. 158-164

https://doi.org/10.6981/FEM.202110_2(10).0023

摘要

Capital structure theory is central to the formulation of financing plans and the implementation of financing decisions by firms, and has been a hot topic of research in the financial world. According to Modigliani and Miller (1958), it does not matter if a company is financed by equity or debt under perfect market condition. However, other capital structure theories (trade-off theory and pecking order theory) emerged in an attempt to explain firms financing decision. This report conducts a literature review and critically analyses and evaluates five capital structure theories by outlining each of them. These include Modigliani and Miller's 1958 and 1963 theories, trade-off theory, pecking order theory, and risk and return. In addition, this report discusses the usefulness of these five theories for the financing decisions of firms.

關鍵字

Capital Structure Theory ； Capital Structure Decisions ； Modigliani and Miller's Theory

參考文獻

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Robb, A. M., and Robinson, D. T.: The capital structure decisions of new firms, The Review of Financial Studies, Vol.27 (2014) No.3, p.153-179.

Rajan, R. G.: Presidential address: The corporation in finance, The Journal of Finance, Vol.67 (2012) No.4, p.1173-1217.

Aboura, S., and Lépinette, E.: Do banks satisfy the Modigliani-Miller theorem? (2013), Available at SSRN :https://ssrn.com/abstract=2348608

Chang, K. P.: The Ownership of the Firm, Corporate Finance, and Derivatives (Springer, Singapore 2015), p.17-22.