Question: Discuss the below theories and how they substantially differ from the M&M theory. Trade off theory - assumes that firms have one optimal debt ratio
Discuss the below theories and how they substantially differ from the M&M theory.
Trade off theory - assumes that firms have one optimal debt ratio and firm trade off the benefit and cost of debt and equity financing.
Pecking order theory - assumes that firms follow a financing hierarchy whereby minimize the problem of information asymmetry
Market timing theory explains the current capital structure as the cumulative outcome of past attempts to time the equity market.
Static theory of Capital Structure.
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