It really depends on the economy (firms) you are analyzing. There is really no definitive answer. In addition, this is why different researchers use different variables in explaining the capital structure decision of firms within and across countries.
It's a little complicated to pinpoint with great precision. There is evidence in the recent capital structure literature raving about non-mutual exclusiveness between these theories, The trade-off and information based theories. I further suspect it all depends in a lot of firm specific and institutional factors reflecting macro level conditions in the economy. The choice whether firms follow trade off or information based theories depends on the quality of the stock market firms operate in and of course firm unique condition such as creditworthiness,type of assets held,size of tangible and quantity and quality of intangible assets just to mention a few. Oftentimes ,in high growth prospect , semi-efficient and inefficient capital markets information based theories tend to outclass trade-off theories. Not to mention,there is no definite proxy for such theory tests.
Raymond A K Cox
Thompson Rivers University
Hochschule für Technik und Wirtschaft Berlin
Western Washington University
University of Southampton
INTI International University
Sandile Jabulane Magagula
University of Pretoria
University of Prishtina
Alexandre Franco Godoi
Centro Universitário Salesiano de São Paulo
University of Jordan
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