More profitable firms have less debt, which supports the trade-off theory.

Name: More profitable firms have less debt, which supports the trade-off theory.
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The trade-off theory suggests that firms balance the tax advantages of debt financing against the costs of potential financial distress. More profitable firms might actually have more debt because they can safely take on debt due to their stable cash flows, not necessarily less.

More Profitable Firms Have Less Debt, Which Supports the Trade-Off