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Theories of Optimal Capital Structure: A Managerial Discretion Perspective

In: Economics in a Changing World

Author

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  • Oliver Hart

    (Harvard University)

Abstract

In the thirty or so years since the Modigliani-Miller theorem, scholars have worked to relax the theorem’s assumptions in order to obtain a better understanding of the capital structure of firms.2 This work has produced some important insights but has not yet delivered a fully coherent theory of optimal capital structure. For example, at present we do not understand very well the distinguishing features of debt and equity or why these claims, as opposed to the many instruments that could be chosen, are most frequently issued by firms. Given this state of affairs, existing explanations of the debt-equity ratio must be seen as still preliminary, as must efforts to use these explanations to understand global trends such as the large increases in leverage in the United States and United Kingdom during the 1980s.

Suggested Citation

  • Oliver Hart, 1996. "Theories of Optimal Capital Structure: A Managerial Discretion Perspective," International Economic Association Series, in: Beth Allen (ed.), Economics in a Changing World, chapter 10, pages 204-235, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-25168-1_10
    DOI: 10.1007/978-1-349-25168-1_10
    as

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