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A Comprehensive Review on Capital Structure Theories

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Author Info

  • Hamed Ahmadinia

    ()
    (Business Administration Department, Management and Economic Faculty, Parand Branch, Islamic Azad University)

  • Javad Afrasiabishani

    (Business Administration Department, Management and Economic Faculty, Parand Branch, Islamic Azad University)

  • Elham Hesami

    (Business Administration Department, Management and Economic Faculty, Parand Branch, Islamic Azad University)

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    Abstract

    The aim of this article is to provide a comprehensive review on different theories and hypothesis in regard with achieving an optimal capital structure. Many researchers believed that capital structure includes share issuance, private investment, bank debt, business debts, leasing contracts, tax debt, retirement debt, deferred compensation for executives and employees, deposits, product related-debt and other probable debt. These theories and hypothesis include: Net income, Net operational income, Traditional approach theory, Miller and Modigliani theory, Static trade–off theory, Asymmetric of the information hypothesis, Pecking order theory, Signaling theory, Agency cost theory, Free cash flow hypothesis, Dynamic trade-off theory and Market Timing theory. By applying these theories, the analysts will be able to reach a maximum return with minimum risk while they increase the value of corporation. Because of the close relationship between profitability and capital structure, this paper is going to suggest a new model called genetic algorithm model by using support vector regression and profitability factors for obtaining an international range of optimal capital structure.

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    File URL: http://www.rejournal.eu/Portals/0/Arhiva/JE%2045/Ahmadinia.pdf
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    Bibliographic Info

    Article provided by Department of International Business and Economics from the Academy of Economic Studies Bucharest in its journal Romanian Economic Journal.

    Volume (Year): 15 (2012)
    Issue (Month): 45 (September)
    Pages: 3-26

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    Handle: RePEc:rej:journl:v:15:y:2012:i:45:p:3-26

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    Related research

    Keywords: Profit Margin; Support Vector Regression; International Optimal Capital Structure; Leverage; Genetic Algorithm;

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    References

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    1. Magni, Carlo Alberto, 2007. "Residual income and value creation: An investigation into the lost-capital paradigm," MPRA Paper 6783, University Library of Munich, Germany.
    2. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Stewart C. Myers, 1993. "Still Searching For Optimal Capital Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 4-14.
    4. Mishra, Dev & Tannous, George, 2010. "Securities laws in the host countries and the capital structure of US multinationals," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 483-500, June.
    5. repec:pra:mprapa:6309 is not listed on IDEAS
    6. Jules H. van Binsbergen & John R. Graham & Jie Yang, 2011. "An Empirical Model of Optimal Capital Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 23(4), pages 34-59, December.
    7. Mahajan, Arvind & Tartaroglu, Semih, 2008. "Equity market timing and capital structure: International evidence," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 754-766, May.
    8. Céspedes, Jacelly & González, Maximiliano & Molina, Carlos A., 2010. "Ownership and capital structure in Latin America," Journal of Business Research, Elsevier, vol. 63(3), pages 248-254, March.
    9. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
    10. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    11. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    12. Vasiliou, Dimitrios & Daskalakis, Nikolaos, 2009. "Institutional characteristics and capital structure: A cross-national comparison," Global Finance Journal, Elsevier, vol. 19(3), pages 286-306.
    13. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
    14. Brennan, Michael J & Schwartz, Eduardo S, 1984. " Optimal Financial Policy and Firm Valuation," Journal of Finance, American Finance Association, vol. 39(3), pages 593-607, July.
    15. Kolasinski, Adam C., 2009. "Subsidiary debt, capital structure and internal capital markets," Journal of Financial Economics, Elsevier, vol. 94(2), pages 327-343, November.
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