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A Theory of Optimal Capital Structure Author info | Abstract | Publisher info | Download info | Related research | Statistics James H. Scott Jr.
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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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:33-54Contact details of provider: Web page: http://www.rje.org
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