The History of Capital Structure Theory

Capital structure theory is an important part of western financial theory. The capital structure theory has gone through two stages: the old capital structure theory and the new capital structure theory. The old capital structure theory is based on a series of strict assumptions, including traditional theory, MM theory and trade-off theory. The main research results include:

(1) Under ideal conditions, MM theory draws the conclusion that capital structure has nothing to do with company value;

⑵ Under the condition of enterprise income tax, MM theory draws the conclusion that the company value increases with the increase of liabilities;

(3) Under the condition of bankruptcy cost, the conclusion of trade-off theory is that in order to maximize the company's value, it is necessary to weigh the tax avoidance income and bankruptcy cost.

The new capital structure theory is based on information asymmetry, including agency theory, control theory, signal theory and pecking order theory. The main research result is to analyze the governance effect of capital structure and its influence on company value under asymmetric information conditions.