Which of the following supports the trade-off theory of capital structure?
A) Firms use cash on hand first, since issuing equity and debt is expensive.
B) A firm's capital structure is the result of past equity and debt issuance decisions.
C) Firms have a target capital structure.
D) Both A and B

Question

Quizplus · Accepted Answer

The trade-off theory of capital structure suggests that firms balance the costs and benefits of debt and equity financing to reach an optimal capital structure, which is often referred to as a target capital structure.

Which of the Following Supports the Trade-Off Theory of Capital