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A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage

In: The Brusov–Filatova–Orekhova Theory of Capital Structure

Author

Listed:
  • Peter Brusov

    (Financial University under the Government of Russian Federation)

  • Tatiana Filatova

    (Financial University under the Government of Russian Federation)

  • Natali Orekhova

    (Financial University under the Government of Russian Federation)

Abstract

Qualitatively new effect in corporative finance is discovered: decreasing of cost of equity ke with leverage L. This effect, which is absent in perpetuity Modigliani–Miller limit, takes place under account of finite lifetime of the company at tax on profit rate, which exceeds some value T*. At some ratios between cost of debt and cost of equity the discovered effect takes place at tax on profit rate, existing in western countries and Russia. This provides the practical meaning of discussed effect. Its accounting is important at modification of tax low and can change the dividend policy of the company.

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 163-183, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-27929-4_9
    DOI: 10.1007/978-3-031-27929-4_9
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