Results of empirical studies of the trade-off theory of capital structure indicate that an important, stable factor is missing from traditional leverage regression models. Our review of theory leads us to the hypothesis that the missing factor is related to profitable growth options (GOs)....

After critiquing arguments and evidence associated with the trade-off theory, the pecking order model, and the market timing hypothesis of corporate financing behavior, we develop a financing orientation hypothesis that integrates arguments from all three theories. The hypothesis posits that a...