Trade off theory:-

The trade off theory explains the advantage and cast that are
attached in acquiring the wan. The theory talks about offsetting
the debt and the cost of debt, where the firm is in a position
where the firm can avail maximum benefit at lowest costs. The
firm need to raise the necessary funds through debt financing up
to a point where it maximize the value of the firm and the costs
of those debts should not exceeds the benefits of the firm
This action taken by financial substitution will certainly change
the inflow for the firm. o check out this thing the author has
proposed a hypothesis .!ccording to this hypothesis, the
collection of more finances by the firm means that the inflows
of the firm are not in a good position rather the inflow are more
that outflows so the firm need to be financed. This type of
situation for the firm"s investor s not encouraging. #nflows
being less change its financial that firm will change its financial
policy about financing its operation and this outflow being more
then inflows suggests that future is not certain from the leans
and its interest payments point of view which is discouraging
for the investor.
The other hypothesis which we call $informational asymmetry
hypothesis% &ayer and massif '()*+, suggest that the
management of a particular firm has a good idea about real
value and position of the firm.
-acking .rder theory:
The theory which is called $-acking order theory% was put for
ward in ()*+ by mayors, !ccording to pecking and order theory
the capital structuring of a particular firm depends on its
preference. The firm may decide to finance its operation from
its own internal sources rather then external sources or the firm
may decide to the firm thorough the issuance of secretes which
will involve high risks. !ll such options are quail able to firm
and the firm makes decision according to its preferences.