CAPITAL STRUCTURE THEORIES: REVIEW OF LITERATURE
CAPITAL STRUCTURE THEORIES: REVIEW OF LITERATURE

Summary/Abstract: Research background: Capital structure is a broad topic in the field of financial management of a company, which describes the composition of sources of financing for a particular enterprise. This issue has not been given much importance in the past. However, financial theorists have begun to address this topic due to the modernization of the financial system and efforts to make the business more efficient. Purpose of the article: The main focus was on financial resources that the enterprise chooses to finance its business activities. The theories of the capital structure began to develop during this historical development, and their main essence is to capture the relationship between the structure of liabilities and the enterprise value. In 1958, there was a principal breakthrough in this area, as Miller and Modigliani published timeless work for the time. In this publication, the authors set out the basic assumptions and statements that shaped one of the first capital structure theories. Methods: Many authors were inspired by Miller and Modigliani publication in creating new theories because these two authors introduced the idea of the independence of the capital structure. The long-term enterprise survival is conditioned by its ability to generate profit. The question is how important the liability structure itself is in achieving this goal. Findings & Value added: The capital structure and decision-making in corporate financing are essential for the operation of an enterprise. The principal aim of this review paper is to explain and clarify the basic definition of the term "capital structure" and, subsequently, to evaluate the historical development of capital structure theories.

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