Notes on "The Capital Structure Puzzle: The Evidence Revisited" (by Michael J. Barclay and Clifford W. Smith)

The Capital Structure Puzzle: The Evidence Revisited
by Michael J. Barclay and Clifford W. Smith, University of Rochester
Journal of Applied Corporate Finance

Three main groups of corporate financial policies: taxes, contracting costs and information costs
Taxes: higher yields effectively reduce the tax advantage of debt over equity
Contracting costs: the use of debt rather than equity reduces what economists call the agency costs of equity - the reduction in firm value arises from the separation of ownership and control in large, public companies with widely dispersed shareholders
Information costs: market timing, signaling (managers have better information than investors), pecking order