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A Comprehensive Review on Capital Structure Theories

Author(s): Hamed Ahmadinia | Hamed Ahmadinia | Elham Hesami

Journal: The Romanian Economic Journal
ISSN 1454-4296

Volume: XV;
Issue: 45;
Start page: 3;
Date: 2012;
Original page

Keywords: Profit Margin | Support Vector Regression | International Optimal Capital Structure | Leverage | Genetic Algorithm

The aim of this article is to provide a comprehensive review on different theories and hypothesis in regard with achieving an optimal capital structure. Many researchers believed that capital structure includes share issuance, private investment, bank debt, business debts, leasing contracts, tax debt, retirement debt, deferred compensation for executives and employees, deposits, product related-debt and other probable debt. These theories and hypothesis include: Net income, Net operational income, Traditional approach theory, Miller and Modigliani theory, Static trade–off theory, Asymmetric of the information hypothesis, Pecking order theory, Signaling theory, Agency cost theory, Free cash flow hypothesis, Dynamic trade-off theory and Market Timing theory. By applying these theories, the analysts will be able to reach a maximum return with minimum risk while they increase the value of corporation. Because of the close relationship between profitability and capital structure, this paper is going to suggest a new model called genetic algorithm model by using support vector regression and profitability factors for obtaining an international range of optimal capital structure.
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