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Theoretical Approaches on Optimal Capital Structure

Author

Listed:
  • Maria Zenovia Grigore

    (Faculty of Economics, „Nicolae Titulescu” University of Bucharest)

  • Mariana Gurau

    (Faculty of Economics, „Nicolae Titulescu” University of Bucharest)

Abstract

F. Modigliani and M. Miller demonstrated in 1958 that in the context of perfect market the financial structure of the firm does not influence its value. Since then, many researchers have approached the issue of financial structure in less restrictive hypotheses. Without reaching a consensus, they have tried to prove that the optimal capital structure exists. The goal of this article is to synthesize the literature on the financial structure and to relate the theories to known empirical evidence. The main models of the optimal financial structure belong to the agency theory, the signalling theory, the transaction cost economics and the pecking order theory. Financing decision varies according to a number of factors that may influence capital structure differently: firm profitability, dividend policy, growth opportunities, asset specificity, corporate tax shield, company size and some macroeconomic factors such as inflation rate and capital market condition

Suggested Citation

  • Maria Zenovia Grigore & Mariana Gurau, 2019. "Theoretical Approaches on Optimal Capital Structure," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 7(2), pages 81-87, December.
    • Handle: RePEc:ntu:ntugeo:vol7-iss2-19-081
    as

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    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. 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.
    4. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    5. Ross, Stephen A, 1978. "Some Notes on Financial Incentive-Signalling Models, Activity Choice and Risk Preferences," Journal of Finance, American Finance Association, vol. 33(3), pages 777-792, June.
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