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CONCLUSION

In corporate financial strategy, the capital structure question requires thoughtful consideration. A firm's choice of capital structure can help an ailing business through tough times, or can mean financial ruin for once-promising, successful businesses. The academic literature has come close to identifying a firm's optimal capital structure. However, empirical evidence suggests that for various reasons, many firms operate with suboptimal capital structures. This could be due to behavioral influences that cause firms to have a bias against debt, or market fluctuations that cause managers to move away from targets. In the coming years, there will likely be new financial innovations that provide funding for business ventures; thus further progress and refinement in capital structure theory will be needed.

NOTES

We thank Si (Brande) Peng and Rammaharaj Sundareswaran for excellent research assistance.

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