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, Wharton School Rodney L. White Center for Financial Research 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, 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, Elsevier, vol. 36(2), pages 433-449, November.
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