Empirical testing of capital structure theories: models, areas of research and results

Abstract

This paper presents an overview of existing empirical literature on testing of capital structure models. A number of research papers testing both trade-off theory and pecking order theory of capital structure in developed and emerging markets are considered. This overview is mainly focused on critical analysis of existing work in the field of capital structure, econometric issues are also addressed. Among the techniques used in testing capital structure models we examine such approaches as dynamic trade-off theory with inaction horizon and event study method.