4. Bankruptcy of the Famous Trade-Off Theory

Within the modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (Brusov and Filatova, Finance Credit 435:2–8, 2011; Brusov et al., Appl Financ Econ 21:815–824, 2011a, Res J Econ Bus ICT 2:16–21, 2011b, Res J Econ Bus ICT (UK) 2:11–15, 2011c, Appl Financ Econ 22:1043–1052, 2012a, J Rev Global Econ 1:106–111, 2012b, J Rev Global Econ 2:94–116, 2013a, J Rev Global Econ 2:183–193, 2013b, Cogent Econ Finance 2:1–13, 2014a, J Rev Global Econ 3:175–185, 2014b, Modern corporate finance, investment and taxation. Springer, Berlin, 2015, J Rev Global Econ 7:104–122, 2018a, J Rev Global Econ 7:88–103, 2018b, J Rev Global Econ 7:63–87, 2018c, J Rev Global Econ 7:37–622018d; Filatova et al., Bull FU 48:68–77, 2008), an analysis of the widely known trade-off theory has been made. It is shown that suggestion about risky debt financing (and about growth of credit rate near the bankruptcy) in opposite to waiting result does not lead to growth of weighted average cost of capital (WACC) which still decreases with leverage. This means the absence of minimum in the dependence of WACC on leverage as well as the absence of maximum in the dependence of company capitalization on leverage. Thus, it means that the optimal capital structure is absent in the famous trade-off theory. The explanation to this fact has been done.