This chapter contains an analysis and synthesis of existing research regarding the behavior of firms when making financing decisions. The aim of this is to reveal similarities and differences, consistencies, inconsistencies and controversies in previous research to meet the research objectives of this study, achieving this objective through the analysis of a range of sources including: academic theories, professional studies , business reports and more. The review is divided into five sections, each defined to support the research objectives specified in the proposal and also the purpose of the research. 3.1 Modigliani and Miller It is important to consider established theories of capital structure because they are the foundation for developmentIn 1961, Pecking order theory was introduced by Donaldson (1961) to challenge the idea that corporations have a unique combination of debt and equity financing that reduces the cost of capital. Donaldson (1961) was the first to observe that management preferred internal funds as a new source for their company's capital investments. Myers (1984), Myers and Majluf (1984) subsequently developed this theory by suggesting that firms have an order of priorities when raising new financing. In particular, they found that firms prefer to use internal funds to finance the firm rather than external funds because information asymmetry can be created when firms seek external funds. Unless internal funds (i.e. retained earnings) are insufficient, debt, such as bank loans or corporate bonds, is the second external source of financing to be used. Equity capital is considered a last resort as it causes an increase in the cost of capital due to the higher level of risk. Additionally, the cost of equity is higher than debt, attributed to the increased expected rate of return on equity. They found that managers are in a stronger position to make judgments regarding a company's future financial decisions, on the basis that an investor's assessment of the value associated with the stock price is vulnerable to a number of volatile factors. Specifically, the lack of access to inside information prevents investors from making accurate assessments of the securities included in the share price. Furthermore, due to the information disadvantage representing higher risk, equity investors will demand a “risk premium” that will result in a higher return, making it more expensive than other sources of financing and therefore less attractive to businesses. as a financial instrument (Hawawini and Viallet,