Add to ORKGCapital structure is a term in financial economics that delineates the proportion that the various claimants have to the assets of the company. It often describes the debt and stock ratio in the right hand side of a company’s balance sheet. Franco Modigliani and Merton Miller first propounded a theory in which they explained that, a firm‟s capital structure does not influence its value, only its underlying assets do. In 1963, after adjusting their initial assumptions to include corporate taxes, they propounded another theory which explained that in a world with corporate taxes, and where interest is tax deductible, an issue of debt adds value to the firm. In later years, other theories were developed which supported the view that capital st...
