Capital Structure Theory: An Overview

ArXiv ID: ssrn-2886251 “View on arXiv”

Authors: Unknown

Abstract

Capital structure is still a puzzle among finance scholars. Purpose of this study is to review various capital structure theories that have been proposed in the

Keywords: Capital Structure, Trade-off Theory, Pecking Order Theory, Leverage, Corporate Finance, Equity

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 2.0/10
• Quadrant: Philosophers
• Why: The paper is a theoretical literature review discussing established capital structure theories (MM, Trade-off, Pecking Order) with minimal advanced mathematics or empirical backtesting, focusing instead on conceptual frameworks and historical context.

  flowchart TD
    A["Research Goal: Review Capital Structure Theories<br/>'Capital Structure Theory: An Overview'"] --> B["Methodology: Literature Review"]
    B --> C["Key Inputs: Historical Finance Theories<br/>(Trade-off, Pecking Order, Market Timing)"]
    C --> D["Computational Process: Comparative Analysis<br/>& Synthesis of Findings"]
    D --> E["Key Outcome 1: Capital structure remains a puzzle<br/>(Context dependent, not one-size-fits-all)"]
    D --> F["Key Outcome 2: Trade-off & Pecking Order<br/>explain different aspects of leverage"]
    D --> G["Key Outcome 3: No single theory dominates;<br/>interplay of taxes, costs, & info asymmetry"]