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Reassess of capital structure theories

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  • Datta, Rajib
  • Chowdhury, Tasnim
  • Mohajan, Haradhan
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    Abstract

    This study presents a review of major capital structure fiction. Capital structure decision is important for companies because it helps to increase firm value by ensuring that the company has enough resources to carry out planned investments using as much as possible the cheapest cost of capital. It therefore involves choices between the different sources of capital such as debt, equity and hybrid capital. The different sources of finance available to companies are also influenced by the quality and maturity of the financial system and the overall risk of operating in that environment. The paper identified a host of capital structure theories that are key contemplation in the financing structure of firms around the world. This review will help companies in emerging and underdeveloped economies identify the peculiarities in the choosing the appropriate blend of capital.

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    File URL: http://mpra.ub.uni-muenchen.de/51165/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51165.

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    Date of creation: 15 Jun 2013
    Date of revision: 10 Jul 2013
    Publication status: Published in International Journal Of Research In Computer Application & Management 10.3(2013): pp. 102-106
    Handle: RePEc:pra:mprapa:51165

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    Keywords: Capital structure; Cash flows; Financial risk; Principles; Theories.;

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    1. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
    2. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    3. Raghuram Rajan & Luigi Zingales, 1998. "Debt, Folklore, And Cross-Country Differences In Financial Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(4), pages 102-107.
    4. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    5. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Vikas Mehrotra & Wayne Mikkelson & Megan Partch, 2005. "Do Managers Have Capital Structure Targets? Evidence from Corporate Spinoffs," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(1), pages 18-25.
    7. Stewart C. Myers, 1993. "Still Searching For Optimal Capital Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 4-14.
    8. Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance 00-001, Rotman School of Management, University of Toronto.
    9. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. John R. Graham & Clifford W. Smith, 1999. "Tax Incentives to Hedge," Journal of Finance, American Finance Association, vol. 54(6), pages 2241-2262, December.
    11. 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.
    12. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    13. Michael J. Barclay & Clifford W. Smith, 1999. "The Capital Structure Puzzle: Another Look At The Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(1), pages 8-20.
    14. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    15. John R. Graham & Michael L. Lemmon, 1998. "Measuring Corporate Tax Rates And Tax Incentives: A New Approach," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(1), pages 54-65.
    16. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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