International Science Community Association Research Journal of Recent Sciences 2277 - 2502 3 10 2014 October 2 A Brief Review of Capital Structure Theories 113 118 EN A. Kiran 1 Department of Management Sciences, Shaheed Zulfikar Ali Bhutto Institute of Science andTechnology, (SZABIST) Islamabad Campus, PAKISTAN Khan M.A. 2 Hemmatipour Mohammad 1 Islamic Azad University, Germi branch, Ardabil, IRAN Javidzade HamidReza 2 Germi Branch, Ardabil, IRAN Fani Reza 3 Khosrotabar Azadeh 1 Shiraz University, IRAN Fakhrahmad SeyedMostafa 2 S. Fazelian 1 Health Care Center, Kermanshah University of Medical Sciences, Kermanshah, IRAN N. Namazi 2 Research Committee, Faculty of Nutrition, Tabriz University of Medical Science, Tabriz, IRAN J. Heshmati 3 Jafari Hamed 1 Master of Physical Education and Sports Science, Islamshahr Branch, Islamic Azad University, Tehran, IRAN Hadavi SeyedehFarideh 2 Islamshahr Branch, Islamic Azad University, Tehran, IRAN Vashmehsaraei MehrshadNasiri 1 Master of Executive Management, Alborz, IRAN Vahedi Elham 2 Department of Executive Master of Business Administration, Alborz, IRAN Shirian Abbas 3 Department of Management and Global Economy, Instroct Scientific Applied Training Center, Tehran, IRAN Jaganathan GaneshK. 1 Institute of Biothermal Technology, University of Shanghai for Science and Technology, Shanghai 200093, CHINA Baolin Liu 2 Laleh Lajevardi 1 Department of Occupational Therapy, School of Rehabilitation Sciences, Iran University of Medical Sciences, Tehran, IRAN Afsoon HassaniMehraban 2 Dept. of Occupational Therapy, School of Rehabilitation Sciences, Rehabilitation Research Center, Iran Uni. of Medical Sciences, Tehran, IRAN RassafianiMehdi 3 Dept. of Occupational Therapy, Pediatric Neuro Rehabilitation Research Center, Uni. of Social Welfare and Rehabilitation Sci., Tehran, IRAN Kamali Mohammad 4 Department of Rehabilitation Management, School of Rehabilitation Sciences, Iran University of Medical Sciences, Tehran, IRAN G O'Toole 5 University of Newcastle, AUSTRALIA Roman Michalovic 1 Faculty of Special Engineering, Mikomix, Družinská 897, Rosina, SLOVAKIA Khan WafaQaiser 1 Computer and Software Engineering Department, Bahria University, Karachi Campus, PAKISTAN Khan ReemaQaiser 2 Department of Computer Science, Federal Urdu University of Arts, Sciences and Technology, Karachi, PAKISTAN Sarim Muhammad 3 Shaikh AbdulBasit 4 Sheikh KashifRaffat 5 N.Y. Bakar 1 Advanced Materials Research Group, School of Fundamental Sciences, Universiti Malaysia Terengganu, 21030 Kuala Terengganu, Terengganu, MALAYSIA M.I.N. Isa 2 Center of Corporate Communication and Image Development, Universiti Malaysia Terengganu, 21030 Kuala Terengganu, Terengganu, MALAYSIA Ansari Bahareh 1 Dept. of Agricultural Development, College of Agriculture, Tehran Science and Research Branch, Islamic Azad University, Tehran, IRAN Mirdamadi SeyedMehdi 2 Dept. of Agricultural Extension and Education, College of Agri., Tehran Science and Research Branch, Islamic Azad University, Tehran, IRAN Hosseini SeyedJamalFarajollah 3 Dept. of Renewable Energy and Environmental Engineering, College of New Sciences and Technologies, University of Tehran, Tehran, IRAN Noorollahi Younes 4 Tootak MohammadAli 1 Islamic Azad University Central Tehran Branch, TEHRAN Diba Darab 2 Ahmadi MohamadRamazan 1 Department of Accounting, University of Shahid Chamran Ahvaz Ahvaz IRAN Sedghiani BabakAbedi 2 Jamali Kamran 3 Nafiseh Taherzadeh 1 Master of Architecture, Lecturer Department of architectural, Qazvin Branch,Islamic Azad University,Qazvin,IRAN Naderi SeyedSajjadChopan 1 Department of Art Architecture, Shabestar Branch, Islamic Azad University, Shabestar, IRAN Shafiei AliDashti 2 G. ShahryarShaghaghi 3 MaryT. Amirtha 1 Department of Social Work, Bishop Heber College, INDIA Shalini J.Florence 2 Iqra Abdullah 1 Faculty of Management, University of Technology (UTM), MALAYSIA COMSATS Yahya Rashid 2 Institute of Information Technology, Lahore, PAKISTAN Mostafa HashemiTilehnouei 1 B.N. Bahadur Institute of Management Sciences, University of Mysore, INDIA Boregowda Shivaraj 2 > Review Paper 2013 10 8 2014 October 2 This paper surveys literatures on five theories of capital structure theories from Modigliani and Miller research paper at 1958 to Halov and heider at 2004. There are two main sources of firms’ financing: internal and external financing, internal financing is related to retained earnings and external financing could be in the form of borrowing or issue of equity. Firms continuously invest because of sustain and growth, for these reasons firms’ financing decisions are very important. Traditional trade-off theory and pecking order theory are most acceptable theories of capital structure. As the traditional trade-off theory asserts, firms have one optimal debt ratio (target leverage). In comparison the pecking order theory implies firms’ preference to internal finance over external finance and debt over equity. From the literature it cannot be concluded whether debt has any tax benefit on balance or not. But it can be said that the share price increases with the debt issuing announcement and falls after announcement of equity issue. As agency models anticipate, leverage is directly related to the value of firm, default probability, free cash flow, extent of regulation, liquidity value, interest coverage, cost of investigation of firm’s prospects and the probability of reorganization upon default. On the other hand, leverage is expected to have inverse relationship with the growth opportunities and the importance of managerial reputation. And also, there are no conclusions about the effects of managerial ownership on leverage. Copyright@ International Science Community Association