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Informative value of firm capital structure

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  • Patrik Bauer
  • Vít Bubák

Abstract

In this paper, the informative value of firm capital structure is analyzed. In the first part, a theoretical background regarding capital structure theories is presented. In the second (empirical) part, the Ohlson (1995) valuation framework is used in order to analyze the informative value of firm capital structure on a sample of data for the Czech (non-financial) companies. A contextual approach is adopted and the value relevance of debt is analyzed considering the signalling and the optimal capital structure theories. According to the results and in accordance with the optimal capital structure theory, debt is more penalized in case of the companies that deviate from the target debt level. Moreover, debt proves to be a positive signal for the firms with a higher earnings growth potential. This, in turn, is consistent with the signalling theory.

Suggested Citation

  • Patrik Bauer & Vít Bubák, 2003. "Informative value of firm capital structure," Prague Economic Papers, University of Economics, Prague, vol. 2003(3).
  • Handle: RePEc:prg:jnlpep:v:2003:y:2003:i:3:id:216
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    Cited by:

    1. Patrik Bauer, 2004. "Capital Structure of Listed Companies in Visegrad Countries," Prague Economic Papers, University of Economics, Prague, vol. 2004(2), pages 159-175.

    More about this item

    Keywords

    conditional capital structure theories; Ohlson valuation model; optimal capital structure theory; signalling theory;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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