This chapter contains an analysis and summary of existing research regarding corporate behavior when making financing decisions. The aim is to reveal similarities and differences, consistencies, inconsistencies and controversies in previous research in order to achieve the research objectives of this study, by analyzing a range of sources including: academic theories, practitioner studies, company reports and more. The review is divided into five sections, each defined to support the research objectives specified in the proposal as well as the purpose of the research.3.1 Modigliani and Miller It is important to consider established theories of capital structure because they constitute the The foundation of the 1961 development, pecking order theory was pioneered by Donaldson (1961) to challenge the idea that firms have a unique combination of debt and equity financing that lowers their cost of capital. Donaldson (1961) was the first to observe that managers preferred internal funds as their firm's new source of capital investment. Myers (1984), Myers and Majluf (1984) further developed this theory by suggesting that firms have an order of priority 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 are the second source of external financing to use. Equity is considered a last resort because it leads to an increase in the cost of capital due to the higher level of risk. Additionally, the cost of equity being higher than debt, attributed to the expected increased rate of return on equity. They found that managers are better placed to make judgments regarding a company's future financial decisions, based on the fact that investors' assessment of the value associated with stock prices is vulnerable to various volatile factors. Specifically, the inability to access inside information prevents investors from making accurate valuations of the securities included in the stock price. Additionally, due to an informational disadvantage representing higher risk, equity investors will demand a "risk premium", which will result in a higher return, making it more expensive than other sources of financing and therefore less attractive for businesses as a financial instrument (Hawawini and Viallet).,