IDEAS home Printed from https://ideas.repec.org/a/eme/rafpps/raf-01-2017-0001.html
   My bibliography  Save this article

Financial restructuring and target capital structure

Author

Listed:
  • Paweł Mielcarz
  • Dmytro Osiichuk
  • Ryszard Owczarkowski

Abstract

Purpose - This paper aims to present an iterative algorithm that yields the amount of debt contracting/repayment or equity investment necessary to achieve the target capital structure. The model also helps to estimate the gains in shareholder value that result from financial restructuring process and lead to the optimal leverage ratio. Design/methodology/approach - The paper maintains that certain benchmarks – i.e. industry average financial leverage and unlevered beta corrected for cash – make it possible to determine the parameters of the optimal capital structure for the company, so a failure to adjust to the target may result in value destruction. Findings - The paper presents an iterative algorithm that yields the amount of debt contracting/repayment or equity investment necessary to achieve the target capital structure. Originality/value - The proposed algorithm overcomes the methodological problems of existing approaches to the estimation of shareholder value gained through financial restructuring and implicitly solves the circularity problem in the calculation of the weighted average cost of capital.

Suggested Citation

  • Paweł Mielcarz & Dmytro Osiichuk & Ryszard Owczarkowski, 2018. "Financial restructuring and target capital structure," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 17(2), pages 280-294, May.
    • Handle: RePEc:eme:rafpps:raf-01-2017-0001
    DOI: 10.1108/RAF-01-2017-0001
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/RAF-01-2017-0001/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/RAF-01-2017-0001/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/RAF-01-2017-0001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Leverage; Capital structure; Beta; Weighted average cost of capital; G32;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:raf-01-2017-0001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.