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Financing Innovations and Capital Structure Choices

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  • Aswath Damodaran

Abstract

The last two decades have seen a stream of innovation in financial markets, especially in the corporate bond arena. Some of these innovations were designed to give firms more flexibility in designing cash flows on borrowings, allowing them to match up cash flows on financing more closely to cash flows on assets, thus increasing their debt capacity. These changes have been for the most part good news for corporate treasurers, but the relentless torrent of innovation has also resulted in some firms issuing these new and more complex securities for the wrong reasons. Some have done so to keep up with other firms in their peer group, and other to take advantage of loopholes in the way ratings agencies and regulatory agencies define debt and equity. In this context, it is worth noting that as corporate bonds have become more complex, investment bankers once more become indispensable to the process, proving both pricing and selling support. It is important that firms recognize when complexity serves their interests, and when it can end up hurting them.

Suggested Citation

  • Aswath Damodaran, 1999. "Financing Innovations and Capital Structure Choices," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-020, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:99-020
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    File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99020.pdf
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    Cited by:

    1. Jean-Étienne Palard, 2007. "Recentrage stratégique et politique de financement:le cas des firmes cotées en Europe (1987-2003)," Revue Finance Contrôle Stratégie, revues.org, vol. 10(3), pages 111-137, September.
    2. Kaivanto, Kim & Zinober, Alan, 2015. "When are Capital Structure Decisions Nonseparable from Production Planning? The Case of Generalized Royalty-Based Hybrid Finance," MPRA Paper 66963, University Library of Munich, Germany.
    3. Kim Kaivanto & Alan Zinober, 2015. "When are capital structure decisions nonseparable from production planning?," Working Papers 96496260, Lancaster University Management School, Economics Department.
    4. Suchismita Ghosh & Ritu Pareek & Tarak Nath Sahu, 2023. "U‐shaped relationship between environmental performance and financial performance of non‐financial companies: An empirical assessment," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1805-1815, July.

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