The analysis of capital structure and its determinants have been one of the central issues in corporate finance. Modigliani and Miller [1], the pioneers, states that firm financials decisions are irrelevant to their value under perfect market conditions. Trade-Off Theory accounts for market imperfections such as taxes, bankruptcy risk, and agency costs. By relaxing the assumptions of perfect capital markets, this framework was developed to explain observed corporate financing behavior. The theory argues that firms determine an optimal leverage ratio by balancing the benefits of debt financing (particularly tax shields) against the associated costs, including financial distress and agency costs [2]. Pecking Order Theory proposes a hierarchical order of corporate financing preferences. Firms primarily prefer to use internal funds to finance investments. When internal funds are insufficient, firms resort to debt financing, while equity issuance is considered a last resort due to higher information asymmetry and associated cost [3].

Previous empirical research has shown considerable interest in testing the validity of the Trade-Off Theory and the Pecking Order Theory of capital structure. Evidence consistent with the Trade-Off Theory is documented in studies such as Titman and Wessels [4], Rajan and Zingales [5], Graham [6], Hovakimian et al. [7], and Hovakimian et al. [8], Fama and French [9], Harford, Klasa, and Walcott [10] and Chung et al [11], Kayhan et al. [12]. In contrast, empirical support for the Pecking Order Theory is found in studies such as Frank and Goyal [13], Rajan and Zingales [5], Shyam-Sunder and Myers [14], Helwege and Liang [15]. Nevertheless, some evidence remains inconclusive. For example, Chirinko and Singha [16] argue that unable to clearly discriminate between the Trade-Off and Pecking Order theories, while Fama and French [9] show that neither theory can be decisively rejected. Consequently, there is no universal theory of debt-equity choice, nor strong reason to expect one (Myers [17]. Following this perspective, researchers have increasingly adopted an integrated approach, explaining firms’ financing decisions using firm-specific characteristics as empirical proxies for the theoretical factors influencing leverage.

Empirical research identifies several firm-specific determinants of capital structure, including profitability, asset tangibility, firm size, growth opportunities, and non-debt tax shields. Although studies generally find broadly similar determinants across developed and developing countries [18], the magnitude and direction of these relationships often vary depending on institutional and market contexts.

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