In explaining the dynamics of corporate Reserve Debt Capacity (RDC) at its utilization and creation of the high-risk and low-risk RDC by the high-value and low-value firms, the present paper seeks to put forward a new theory in literature. Utilizing the concept of suboptimality at firms' pecking...

The paper reports that, when firms follow the Pecking Order Theory, a sub-optimality with the cost components of firms' capital structure exists. The sub-optimality drives firms to follow the Trade-Off Theory to reach optimality concerning the cost components of capital structure. At higher...