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http://ssrn.com/abstract=556631
 
 

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Theory of Capital Structure - a Review


Stein Frydenberg


Sor Trondelag University College - Trondheim Business School

January 26, 2011

FRIHET OG MANGFOLD, FESTSSKRIFT TIL ODD, G. Arntzen. L. Fallan & O. Gustafsson, eds., Trondheim: Tapir/TØH, Tapir Academic Press, NO-7005 Trondheim, Norway

Abstract:     
This paper is a review of the central theoretical literature. The most important arguments for what could determine capital structure is the pecking order theory and the static trade off theory. These two theories are reviewed, but neither of them provides a complete description of the situation and why some firms prefer equity and others debt under different circumstances. The paper is ended by a summary where the option price paradigm is proposed as a comprehensible model that can augment most partial arguments. The capital structure and corporate finance literature is filled with different models, but few, if any give a complete picture.

Number of Pages in PDF File: 41

Keywords: Theory, Capital, Structure, Review, static, trade, pecking, order

JEL Classification: G32

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Date posted: June 17, 2004 ; Last revised: January 28, 2011

Suggested Citation

Frydenberg, Stein, Theory of Capital Structure - a Review (January 26, 2011). FRIHET OG MANGFOLD, FESTSSKRIFT TIL ODD, G. Arntzen. L. Fallan & O. Gustafsson, eds., Trondheim: Tapir/TØH, Tapir Academic Press, NO-7005 Trondheim, Norway. Available at SSRN: http://ssrn.com/abstract=556631

Contact Information

Stein Frydenberg (Contact Author)
Sor Trondelag University College - Trondheim Business School ( email )
Jonsvannsvegen 82
Postboks 2320
Trondheim, N-7004
Norway
47-73559987 (Phone)
47-73559951 (Fax)
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