An Examination into the Linkage Between Production Theory and Capital Structure of a Firm

Abstract

This scholarly article explores the complex relationship between production theory and the capital structure of a firm. Production theory refers to the methodical approach that businesses use to determine the optimal output quantities based on market demand. The article thoroughly discusses how production theory impacts decision-making processes related to capital structure. It explains that production theory helps enterprises make informed decisions that align with their capital structure, ultimately benefiting the firm as a whole. This is achieved by incorporating production-related factors with expected returns. Additionally, the article critically examines the criticisms and limitations associated with production theory. In summary, the article argues that production theory significantly influences business decision-making, empowering entrepreneurs and investors to make informed choices that maximize the use of capital resources and promote economic growth. The research findings highlight the importance of understanding production theory and its relationship with capital structure in formulating strategic decisions that enhance profitability and ensure long-term operations. The article emphasizes the symbiotic nature of the relationship between production theory and capital structure, underscoring their indispensable roles in shaping economic decision-making and guiding successful business strategies. The study recommends regularly assessing business performance against industry benchmarks to drive continuous improvement and adopting adaptive strategies for sustained growth and competitiveness.