Linkages in Capital Structure Theory and Economics

Abstract

The foremost purpose of this paper is to concisely explain to individuals teaching economics
in an academic setting or using economics in a practical setting some of the basics of long run
financial theory focusing on the capital structure of a corporation. The main motivation for
this study is based on observations of economists being very deficient in the discipline of
finance especially in long run financial concepts. Many times practitioners or academics
educated in the area of economics lack any type of background in finance and therefore are
deficient with their knowledge of financial theory and applications. This disconnect prevents
using many financial applications in their own classes, in their own businesses or with their
own research. This paper serves as an primer to some of the long run capital structure theories
that individuals can use as a starting point to their additional research, study or use in
teaching. Areas related to capital structure and financial theory in general can be utilized by
economists in academia and the private sector to enhance and advance their professional
careers.