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Game Theory: Minimising The Cost Of Capital Vs. Maximising The Return Of Investors

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  • Brindusa Tudose

Abstract

The application of game theory to financial transactions focuses on two categories of stakeholders: users of financing (firms) and providers of financing (investors). The core of game theory consists in the strategy that a partner is able to build starting from the possible decisions of the other partner (each party having opposing interests). In fact, we deal here with a cooperative game in which both opponents seek to maximise their own chances of winning. The article aims to highlight the manner in which mathematical game theory is transposed in the field of corporate finance by balancing the firm’s objectives (maximising market value by minimising the cost of raising capital) and the investors’ objectives (maximising returns on investments). The intended novelty of this paper lies in developing a model for optimising a firm’s financial structure and assessing it in terms of investors’ interests.

Suggested Citation

  • Brindusa Tudose, 2014. "Game Theory: Minimising The Cost Of Capital Vs. Maximising The Return Of Investors," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 20.
    • Handle: RePEc:bac:fsecub:14-20-13
    as

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    References listed on IDEAS

    as
    1. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
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    More about this item

    Keywords

    financial structure; optimisation criteria; cost minimisation; profit maximisation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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