Review of capital structure theories: The Financial Crisis impact on United Kingdom firms

Abstract

In this paper we examine the prevailing theories of capital structure (Trade-off theory, theory of representation costs, Pecking-order theory and Market timing), in all quoted companies on London Stock Exchange, before and after the crisis, and the foreign capitals used in order to establish which theory best explains the capital structure of companies in the United Kingdom.  For the first time we examined a large sample of companies in the years between 2000 and 2012. This paper’s differentiation lies in that it turned out that in all British listed companies the investment has no impact on their borrowing levels, thus lending mainly serves their current liabilities and also positively assists the growth of the companies, and observes how the significance of the variable Markets to Book  Ratio affect our basic theories after crisis. Our findings are more consistent with the Trade-off theory.