The changing nature of debt and equity; a financial perspective
AbstractAs a result of the historical importance of debt and equity, the traditional focus of inquiry into firmsâ choice of capital structure has been "What is the optimal debt/equity ratio?" This approach lead to the Modigliani and Miller theorems and a large body of subsequent work but has not been very successful in explaining firmsâ actual choices of debt and equity. The notion that firms finance their activities with debt and equity is a simplification; corporations have issued securities other than standard debt and equity for many centuries. This fact and the rapid pace of financial innovation in recent years suggests that a more fundamental issue than "What is the optimal debt/equity ratio?" is "What are the optimal securities that should be issued?" This paper surveys recent studies of capital structure that have looked at this question.
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Bibliographic InfoArticle provided by Federal Reserve Bank of Boston in its journal Conference Series ; [Proceedings].
Volume (Year): 33 (1989)
Issue (Month): ()
Other versions of this item:
- Franklin Allen, . "The Changing Nature of Debt and Equity: A Financial Perspective," Rodney L. White Center for Financial Research Working Papers 35-89, Wharton School Rodney L. White Center for Financial Research.
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- Houston, Joel F. & Venkataraman, S., 1996. "Liquidation under moral hazard: Optimal debt maturity and loan commitments," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 115-133, January.
- Bohn, Henning, 1995. "Towards a theory of incomplete financial markets A review essay," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 433-449, November.
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