Agency cost theory of capital structure:

A. suggests that raising more debt is beneficial for firms because it reduces corporate free cash flows for managers to steal from.

B. suggests that raising more debt is good for shareholders because agency cost of debt is lower.

C. suggests that firms should use internal cash first, followed by debt, and use equity as the last resort for the source of financing.

D. suggests that capital structure does not affect firm value.

E. suggest that better governed firms have higher debt ratios.

Agency cost theory of capital structure: suggests that raising more debt is beneficlal for firms because it reduces corporate free cash flows for managers to steal from. suggests that raising more debt is good for shareholders because agency cost of debt is lower. suggests that firms should use internal cash first, followed by debt, and use equily as the last resort for the source of financing. suggests that capital structure does not affect firm value. suggest that better governed firms have higher debt ratios