COMM 371 Lecture Notes - Current Liability, Yield Curve, Retained Earnings

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Microsoft and oracle are two of the largest software development companies in the ever-expanding technology sector. Though they share many similarities in industry and specialization, they have starkly contrasting capital structures and cash policies. In understanding the capital structure of a corporation, there are four principle theories which affect the decisions managers make to determine the optimal ratio of debt-to- equity to maintain for the corporation. These theories are the static trade-off theory, the market timing theory, the stakeholder theory, and the pecking order theory; all theories influence a corporation"s cash policy. However, these theories can be contradicting on certain elements and it is indeterminate if any of these theories could lead to a conclusive universal policy to determine the optimal capital structure of a corporation. Our analysis intends on addressing the lack of a universal explanation of the capital structure and cash policies of industrially similar but financially differing corporations.

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