The Theory of Capital Structure




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    • Harris is Chicago Board of Trade Professor of Finance and Business Economics, Graduate School of Business, University of Chicago. Raviv is Alan E. Peterson Distinguished Professor of Finance, Kellogg Graduate School of Management, Northwestern University. We gratefully acknowledge the financial support of the Bradley Foundation. Professor Harris wishes to acknowledge partial financial support from Dimensional Fund Advisors. We also thank seminar participants at the University of Chicago, UCLA, and Tel Aviv University and Michael Fish-man, Robert Hansen, Ronen Israel, Steven Kaplan, Robert McDonald, Andrei Shleifer, René Stulz (the editor), Robert Vishny, an anonymous referee, and especially Vincent Warther whose tireless research assistance was invaluable.


This paper surveys capital structure theories based on agency costs, asymmetric information, product/input market interactions, and corporate control considerations (but excluding tax-based theories). For each type of model, a brief overview of the papers surveyed and their relation to each other is provided. The central papers are described in some detail, and their results are summarized and followed by a discussion of related extensions. Each section concludes with a summary of the main implications of the models surveyed in the section. Finally, these results are collected and compared to the available evidence. Suggestions for future research are provided.