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Survey Research in Corporate FinanceBridging the Gap between Theory and Practice$
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H. Kent Baker, J. Clay Singleton, and E. Theodore Veit

Print publication date: 2010

Print ISBN-13: 9780195340372

Published to Oxford Scholarship Online: May 2011

DOI: 10.1093/acprof:oso/9780195340372.001.0001

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Capital Structure and Financing Decisions

Capital Structure and Financing Decisions

Chapter:
(p.195) 5 Capital Structure and Financing Decisions
Source:
Survey Research in Corporate Finance
Author(s):

H. Kent Baker (Contributor Webpage)

J. Clay Singleton (Contributor Webpage)

E. Theodore Veit (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195340372.003.0005

This chapter reviews the findings of academic surveys of corporate executives indicating how firms make capital structure and financing decisions. The chapter compares the survey findings to the theoretically correct methods and applications described and recommended in the academic literature. The chapter describes five theoretical capital structure models: static tradeoff, pecking order, signaling, agency cost, and neutral mutation. It then reviews the survey literature that tests the connections between these normative theories and corporate practice. Some survey studies find evidence that one or more theories tend to explain capital structure decisions. Other surveys find evidence that financial planning rules-of-thumb (e.g. financial flexibility, long-term survivability, and impact on security prices) are the primary guides for firms making capital structure decisions. While most studies discussed here focus on large U.S. firms, many focus on non-U.S. firms, and small U.S. firms.

Keywords:   agency cost, capital structure, financial flexibility, financing decisions, neutral mutation, pecking order, signaling, static tradeoff

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