Abstract
This paper contrasts the and theories of capital structure choice by corporations. In the static tradeoff theory, optimal capital structure is reached when the tax advantage to borrowing is balanced, at the margin, by costs of financial distress. In the pecking order theory, firms preferinternal to external funds, and debt to equity if external funds are needed. Thus the debt ratio reflects the cumulative requirement for external financing. Pecking order behavior follows from simple asymmetric information models. The paper closes with a review of empirical evidence relevant to the two theories.
Keywords
EconomicsCapital structureMonetary economicsMacroeconomics
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Publication Info
- Year
- 1984
- Type
- article
- Volume
- 39
- Issue
- 3
- Pages
- 575-575
- Citations
- 2994
- Access
- Closed
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Cite This
Stewart C. Myers
(1984).
The Capital Structure Puzzle.
The Journal of Finance
, 39
(3)
, 575-575.
https://doi.org/10.2307/2327916
Identifiers
- DOI
- 10.2307/2327916