Mehrotra, Vikas; Mikkelson, Wayne; Partch, Megan - In: Journal of Applied Corporate Finance 17 (2005) 1, pp. 18-25
The two main theories of capital structure-the tradeoff theory and the pecking order theory-have opposite predictions about the expected relationship between corporate leverage and profitability. According to the tradeoff theory, companies that earn higher profits will use more debt both to...