According to the trade-off theory, the capital structure is a trade-off between:

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The trade-off theory suggests that there is an optimal level of debt for a firm which balances the benefits of tax savings with the costs of financial distress. As a firm increases its level of debt, the tax savings from interest payments also increase, but so do the costs of potential financial distress such as bankruptcy, which can ultimately lead to a loss of value for shareholders. Therefore, the optimal capital structure involves a trade-off between maximizing tax savings and minimizing the costs of financial distress.

According to the Trade-Off Theory, the Capital Structure Is a Trade-Off