Download or read book Corporate Finance and Capital Structure written by Kentaro Asai and published by Routledge. This book was released on 2020-12-30 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: A concise guide for students to quickly grasp the essentials of capital structure theory, providing them with a “shortcut” to the comprehension of important frameworks and a “story” that allows them to see what each model is motivated by and aimed at, especially in relation to competing models. Thereby, the book exclusively allows readers to learn capital structure theory in an efficient and unified manner. In this book, the author captures, in a succinct way, the key frameworks that persistently appear in the corporate finance arena, such as the neutrality of capital structure in a frictionless capital market, trade-off theory, agency theory, security design, and information asymmetry. Suitable both as a core textbook for post-graduate or doctoral level students and as a concise guide for practitioners and regulators.

Download or read book Theories of Optimal Capital Structure written by Oliver Hart and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the thirty or so years since the Modigliani-Miller theorem, scholars have worked to relax the theorem's assumptions in order to obtain a better understanding of the capital structure of firms. This work has produced some important insights but has not yet delivered a fully coherent theory of optimal capital structure. For example, at present we do not understand very well the distinguishing features of debt and equity or why these claims, as opposed to the many instruments that could be chosen, are most frequently issued by firms. Given this state of affairs, existing explanations of the debt-equity ratio must be seem as still preliminary, as must efforts to use these explanations to understand global trends such as the large increases in leverage in the United States and United Kingdom during the 1980s.In the first part of this paper, I will argue that one reason progress on understanding capital structure has been limited is that relatively few analysts have adopted an explicit agency-theoretic or managerial discretion perspective. In particular, although the literature, starting with the work of Michael Jensen and William Meckling, frequently refers to conflicts of interest, most of it does not emphasize the conflict of interest between a firm's management and its security holders. But I argue that this particular conflict of interest - that is, the idea that management is self-interested - is critical. In the absence of this conflict, optimal capital structure would look very different from what is observed in the world. In particular, firms would not issue senior or secured debt, whereas in fact a considerable amount of corporate debt has at least one of these features. That is, standard departures from the Modigliani-Miller framework that focus on the role of taxes, asymmetric information, or incomplete markets but ignore managerial self-interest are not sufficient to explain observed capital structure.In the second part of the analysis I will discuss what has been learned from the relatively few studies that have explicitly adopted an agency-theoretic perspective. This body of work, although itself quite preliminary, can explain the use of senior or secured debt or both, as well as shed light on some observe patterns of capital structure, including a number of findings from studies that measure the response of security prices to important events that affect optimal capital structure (quot;event studiesquot;).

Download or read book Critique on Optimal Capital Structure written by Dr. Syed Shabib ul Hasan and published by . This book was released on 2013 with total page 2 pages. Available in PDF, EPUB and Kindle. Book excerpt: The existence of an optimal capital structure for a firm has always remained a matter of serious discussion among financial analysts and academia. The conventional approach advocates the existence of optimal capital structure based on the relationship between the cost of capital and the capital structure of the firm. According to this approach the weighted average cost of capital falls initially with leverage as the increase in required return on equity does not completely offset the cheaper debt financing. However, later on when the increase in required return on equity is more than what it offset in the use of cheaper debt financing in the capital structure, the weighted average cost of capital starts to ascend which further increases once the cost of debt financing starts to go up as well. The conventional approach therefore holds that there is the possibility of the existence of “optimal capital structure” based on the relationship between cost of capital and the capital structure of the firm. However Modigliani & Miller in their significant and influential work on the effects of capital structure on the firm's value, conclude that where there is a perfect financial market “capital structure is irrelevant” considering no-tax case, which can be literally understood as the firm's value, being independent of its financial structure having no optimal capital structure. This paper aspires to evaluate the Modigliani and Miller corporate capital structure model and critically examine its validity in the context of its application in a real life situation, using the example of the UK. Another point of concern is what a firm takes into consideration when evaluating the financing options and why it prefers one alternative over the other, or else looks for optimal capital structure. Other things remaining equal, the rapid growth of borrowing increases the probability of the corporate sector facing difficulties in servicing its debt. Therefore it seems unlikely that corporate capital structure can be fully explained by any one theory, especially given that the theories are not mutually exclusive.

Download or read book Synopsis of Optimal Capital Structure Theories written by Murray. Michael J. and published by . This book was released on 1977 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital Structure in the Modern World written by Anton Miglo and published by Springer. This book was released on 2016-07-20 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book focuses on microeconomic foundations of capital structure theory. It combines theoretical results with a large number of examples, exercises and applications. The book examines fundamental ideas in capital structure management, some of which are still not very well understood in the business community, such as Modigliani and Miller’s irrelevance result, trade-off theory, pecking-order theory, asset substitution, credit rationing and debt overhang. Chapters also cover capital structure issues that have become very important following the recent financial crisis. Miglo discusses the ways in which financial economists were forced to look critically at capital structure, as the problems faced by many companies stemmed from their financing policies following the crisis. The book also discusses links between capital structure and firm’s performance, corporate governance, firm’s strategy and flexibility, and covers such topics as life cycle approach to capital structure management, capital structure of small and start-up companies, corporate financing versus project financing and examples of optimal capital structure analyses for different companies. This comprehensive guide to capital structure theory will be of interest to all students, academics and practitioners seeking to understand this fast-developing and critical area of business management.

Download or read book Capital Structure and Firm Performance written by Arvin Ghosh and published by Routledge. This book was released on 2017-07-05 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: Capital structure theory is one of the most dynamic areas of finance and forms the basis for modern thinking on the capital structure of firms. Much controversy has resulted from comparisons of the theory of capital structure originally developed by Franco Modigliani and Merton Miller to real-world situations. Two competing theories have emerged over the years, the optimal capital structure theory and the pecking order theory.Arvin Ghosh begins with an overview of the controversies regarding capital structure theories, and then statistically tests both the optimal capital structure and pecking order theories. Using the binomial approach he analyzes the determinants of capital structure while discussing the role of market power in determining capital structure decisions. Ghosh probes the questions of new stock offerings and stockholders' returns, and analyzes capital structure and executive compensation. He then looks into debt financing ownership structure, and the controversal relationship between capital structure and firm profitability. Finally, he discusses the latest developments in the field of capital structure.A concise overview of a major issue in business economics and finance, this volume provides a fuller understanding of capital structure influence on the financial performance of firms, and will certainly stimulate further debate. While hundreds of scholarly articles have been written on the subject this is the first book to test competing theories against measurements of firms' performance and their underlying capital structure.

Download or read book Note on the Theory of Optimal Capital Structure written by William E. Fruhan (Jr) and published by . This book was released on 1979 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital Structure Puzzle written by Stewart C. Myers and published by . This book was released on 1984 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper contrasts the "static tradeoff" and "pecking order" theories of capital structure choice by corporations. In the static tradeoff theory, optimal capital structure is reached when the tax advantage to borrowing is balanced, at the margin, by costs of financial distress. In the pecking order theory, firms preferinternal to external funds, and debt to equity if external funds are needed. Thus the debt ratio reflects the cumulative requirement for external financing. Pecking order behavior follows from simple asymmetric information models. The paper closes with a review of empirical evidence relevant to the two theories.

Download or read book The Theory of Capital Structure How theory meets practice in the German market written by Benjamin Friedrich and published by ibidem-Verlag / ibidem Press. This book was released on 2012-02-03 with total page 138 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theory of capital structure is one of the most exciting and complex topics in corporate finance. After many years of debate it is still extremely difficult to provide a conclusive answer to the question which capital structure maximises the value of a company and what factors determine the optimal mix of debt and equity capital.This book provides a comprehensive introduction to capital structure theory and investigates its practical relevance in the German market. The main objectives are to explore the link between capital structure theory and corporate practice and to test determinants of capital structure choice empirically.The book has been written for students, researchers, and academics, but also for practitioners seeking empirical evidence of capital structure theory and an empirical model that can be used to estimate the optimal level of debt for an individual company in relation to an existing industry optimum.

Download or read book Does capital structure influence firms value written by Ulrike Messbacher and published by GRIN Verlag. This book was released on 2005-12-20 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2004 in the subject Business economics - Investment and Finance, grade: 1, University of Applied Sciences Kempten (University of Ulster), language: English, abstract: In accordance with the Signalling model by Ross (1977) an increase in gearing represents, in term of a company’s prospective cash flows, a positive signal to external investors. Because, due to the higher risk of financial distress, companies with less optimistic market prospective tend to avoid additional financial obligations. This implies that an increasing indebtedness means a higher quality of business and therefore better valuation. This leads, in turn, to the assumption that the corporate management can influence a firm’s value by changing its capital structure. If capital structure can affect value, how can firms identify an optimal capital structure and what will it look like? It is that mix of debt and equity that maximises the value of a firm and, at the same time, minimise overall cost of capital. In their seminal article, published in 1958 and 1963, Modigliani and Miller argue that under certain assumptions the value of a firm i s independent of its capital structure, but with tax-deductible interest payments, they are positively related. Moreover, there are other approaches with partly contradictory perceptions. For instance, Myers (1998, cited in Fairchild 2003, p.6) argues that there is no universal optimal mix of debt and equity; in fact it depends on firms or industries, and therefore should be considered on a case-by-case basis. Other researchers have added market imperfections, such as bankruptcy costs, agency costs, and gains from leverage- induced tax shields to the analysis and have maintained that an optimal capital structure may exist (Hatfieldet al.1994, p.1). First, this paper shows the basic determinants of a firm’s value in association with the impact of financial leverage on payoffs to stockholders. Secondly, it considers some arguments of capital structure theories, particularly the Modigliani and Miller theorem and the Traditional approach and contrasts them. Finally, the underlying factors of the model assumptions are examined and shown that they are important in the choice of a firm’s debt-equity ratio.

Download or read book Note on the Theory of Optimal Capital Structure written by William E. Fruhan and published by . This book was released on 1979 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Corporate Capital Structures in the United States written by Benjamin M. Friedman and published by University of Chicago Press. This book was released on 2009-05-15 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: The research reported in this volume represents the second stage of a wide-ranging National Bureau of Economic Research effort to investigate "The Changing Role of Debt and Equity in Financing U.S. Capital Formation." The first group of studies sponsored under this project, which have been published individually and summarized in a 1982 volume bearing the same title (Friedman 1982), addressed several key issues relevant to corporate sector behavior along with such other aspects of the evolving financial underpinnings of U.S. capital formation as household saving incentives, international capital flows, and government debt management. In the project's second series of studies, presented at the National Bureau of Economic Research conference in January 1983 and published here for the first time along with commentaries from that conference, the central focus is the financial side of capital formation undertaken by the U.S. corporate business sector. At the same time, because corporations' securities must be held, a parallel focus is on the behavior of the markets that price these claims.

Download or read book The Right Balance for Banks written by William R. Cline and published by Policy Analyses in International Economics. This book was released on 2017 with total page 241 pages. Available in PDF, EPUB and Kindle. Book excerpt: William R. Cline analyzes whether reforms of capital requirements for banks have gone far enough. He calculates how much higher bank capital reduces the risk of banking crises. This study also challenges the recent "too much finance" literature, which holds that in advanced countries banking sectors are already too large and are curbing growth.

Download or read book Short Introduction to Corporate Finance written by Raghavendra Rau and published by Cambridge University Press. This book was released on 2017-01-11 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Short Introduction to Corporate Finance provides an accessibly written guide to contemporary financial institutional practice. Rau deploys both his professional expertise and experience of teaching MBA and graduate-level courses to produce a lively discussion of the key concepts of finance, liberally illustrated with real-world examples. Built around six essential paradigms, he builds an integrated framework covering all the major ideas in finance over the past half-century. Ideal for students and practitioners alike, it will become core reading for anyone aspiring to become an effective manager.

Download or read book The Theory of Optimal Capital Structure Theoretical and Empirical Investigation written by Eui Yong Lee and published by . This book was released on 1976 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capital Structure written by Ahmed Riahi-Belkaoui and published by Praeger. This book was released on 1999-02-28 with total page 238 pages. Available in PDF, EPUB and Kindle. Book excerpt: This text uses theoretical and contingency approaches to examine the question of whether capital structure can be determined. Using a bond rating model it looks at the evaluation of capital structure, the resolution of issues pertaining to equity and liabilities, and their contribution to reports

Download or read book Empirical Capital Structure written by Christopher Parsons and published by Now Publishers Inc. This book was released on 2009 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.