Trade-off theory of capital structure and entrepreneurship
According to the trade-off theory of capital structure, businesses must choose between the advantages and disadvantages of debt financing in order to achieve the best capital structure. This hypothesis has significant business implications since startups frequently have particular difficulties in securing funding and controlling their financial structure. The main ideas of the capital structure trade-off theory will be examined in this essay, along with how they apply to entrepreneurship. The trade-off theory of capital structure posits that enterprises must balance the benefits and costs of debt financing in order to attain an optimal capital structure. The capacity to leverage a company's assets and increase shareholder returns are two advantages of debt financing, in addition to the tax advantages of interest payments. However, However, there are also costs associated with debt financing, including the risk of financial distress, the cost of bankruptcy, and the potential loss o