If there is an economically important optimal capital structure, then firms that deviate too far from the optimum will face greater risk of failure or acquisition. Using data from the oil industry we find no significant evidence that capital structure policy affects acquisition or failure probability. Firms appear to increase leverage when they face attractive growth opportunities or when poor operating performance reduces equity value or compels borrowing. Firms are acquired when rapid growth has reduced financial slack. In a clinical examination, we address the question of how firms with persistently low leverage can operate and survive for many years without being targeted for acquisition. Our evidence supports the pecking-order hypothesis, including acquisition among potential financing sources.