The Pecking Order, Trade-Off, Signaling, and Market-Timing Theories of Capital Structure: A Review
A. Miglo. (2011). Chapter 10 "Trade-Off, Pecking Order, Signaling, and Market Timing Models". in H. Kent Baker, Gerald S. Martin. Capital Structure and Corporate Financing Decisions: Theory, Evidence, and Practice. (Wiley and Sons) Mar 31, 2011, pp 171-191
26 Pages Posted: 24 Jun 2010 Last revised: 9 Dec 2016
Date Written: March 23, 2010
This paper surveys 4 major capital structure theories: trade-off, pecking order, signaling and market timing. For each theory, a basic model and its major implications are presented. These implications are compared to the available evidence. This is followed by an overview of pros and cons for each theory. A discussion of major recent papers and suggestions for future research are provided.
Keywords: trade-off theory, pecking-order theory, signalling, market timing
JEL Classification: G30, G32
Suggested Citation: Suggested Citation