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A Theory of Optimal Capital Structure

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Author Info
James H. Scott Jr.
Abstract

This paper presents a multiperiod model of firm valuation derived under the assumptions that bankruptcy is possible and that secondary markets for assets are imperfect. Given the assumption that the probability of bankruptcy is zero, the model is formally identical to that proposed by Modigliani and Miller. Under plausible conditions the model implies a unique optimal capital structure. Comparative statics analysis is used to obtain a number of testable hypotheses which specify the parameters on which optimal financial policy depends. Implications for the debt policy of the regulated firm are also considered.

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File URL: http://links.jstor.org/sici?sici=0361-915X%28197621%297%3A1%3C33%3AATOOCS%3E2.0.CO%3B2-T&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 7 (1976)
Issue (Month): 1 (Spring)
Pages: 33-54
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Handle: RePEc:rje:bellje:v:7:y:1976:i:spring:p:33-54

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  1. Francisco Sogorb- Mira, 2002. "How Sme Uniqueness Affects Capital Structure: Evidence From A 1994-1998 Spanish Data Panel," Working Papers. Serie EC 2002-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  2. Clara Cardone & María J. Casasola, 2003. "What Do We Know About The Financial Behaviour Of The Spanish Sme?: An Empirical Analysis," Business Economics Working Papers wb033708, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  3. Sikandar Hussain & M. Shahid Ebrahim, 2005. "Financial Development and Property Valuation," Computing in Economics and Finance 2005 24, Society for Computational Economics. [Downloadable!]
  4. Jocelyn Martel, 1996. "Solutions au stress financier : Un survol de la littérature," CIRANO Working Papers 96s-03, CIRANO. [Downloadable!]
  5. Fabio ALESSANDRINI, 2003. "Introducing Capital Structure in a Production Economy: Implications for Investment, Debt and Dividends," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.03, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  6. David Amdur, 2008. "Capital Structure Over The Business Cycle," Working Papers gueconwpa~08-08-03, Georgetown University, Department of Economics. [Downloadable!]
  7. Udo Broll & Kit Wong, 2006. "Multinationals, Hedging, and Capital Structure under Exchange Rate Uncertainty," Open Economies Review, Springer, vol. 17(1), pages 103-114, January. [Downloadable!] (restricted)
  8. Suzan Hol and Nico van der Wijst, 2006. "The financing structure of non-listed firms," Discussion Papers 468, Research Department of Statistics Norway. [Downloadable!]
  9. Francisco Sogorb- Mira & José Lopez- Gracia, 2003. "Pecking Order Versus Trade-Off: An Empirical Approach To The Small And Medium Enterprise Capital Structure," Working Papers. Serie EC 2003-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  10. Kwang Choi, 1987. "Tax Policy And Corporate Financial Structure In Korea," International Economic Journal, Korean International Economic Association, vol. 1(4), pages 61-76, December. [Downloadable!] (restricted)
  11. S. Balcaen & J. Buyze & H. Ooghe, 2009. "Financial distress and firm exit: determinants of involuntary exits, voluntary liquidations and restructuring exits," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/598, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
    Other versions:
  12. Mayur, Manas & Kumar, Manoj, 2006. "An Empirical Investigation of Going Public Decision of Indian Companies," MPRA Paper 1801, University Library of Munich, Germany. [Downloadable!]
  13. J. Gregory Ballentine & Charles E. McLure, Jr., 1980. "Taxation and Corporate Financial Policy," NBER Working Papers 0243, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Georg Wamser, 2008. "The Impact of Thin-Capitalization Rules on External Debt Usage – A Propensity Score Matching Approach," Ifo Working Paper Series Ifo Working Paper No. 62, Ifo Institute for Economic Research at the University of Munich. [Downloadable!]
  15. Alex Kane & Alan J. Marcus & Robert L. McDonald, 1986. "Debt Policy and the Rate of Return Premium to Leverage," NBER Working Papers 1439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Kesternich, Iris & Schnitzer, Monika, 2009. "Who is afraid of political risk? Multinational firms and their choice of capital structure," Discussion Paper Series 1: Economic Studies 2009,02, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  17. Lemma W. Senbet & Robert A. Taggart, Jr., 1984. "Capital Structure Equilibrium under Incomplete Market Conditions," NBER Working Papers 0747, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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