Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Capital Structure Puzzle: Another Look at the Evidence

The Capital Structure Puzzle: Another Look at the Evidence Since the formulation of the Miller and Modigliani propositions over 60 years ago, financial economists have been debating whether there is such a thing as an optimal capital structure—a proportion of debt to equity that can be expected to maximize long‐run shareholder value. Some finance scholars have followed M&M in arguing that both capital structure and dividend policy are irrelevant in the sense of having no significant, predictable effects on corporate market values. Another school of thought holds that corporate financing choices reflect an attempt by corporate managers to balance the tax shields and disciplinary benefits of more debt against the costs of financial distress. Still another theory says that companies do not have capital structure targets, but instead follow a financial pecking order in which retained earnings are generally preferred to outside financing, and debt is preferred to equity when outside funding is required. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

The Capital Structure Puzzle: Another Look at the Evidence

Loading next page...
 
/lp/wiley/the-capital-structure-puzzle-another-look-at-the-evidence-yJuAQg1k0x

References (0)

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Wiley
Copyright
Copyright © 2020 Cantillon and Mann
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/jacf.12390
Publisher site
See Article on Publisher Site

Abstract

Since the formulation of the Miller and Modigliani propositions over 60 years ago, financial economists have been debating whether there is such a thing as an optimal capital structure—a proportion of debt to equity that can be expected to maximize long‐run shareholder value. Some finance scholars have followed M&M in arguing that both capital structure and dividend policy are irrelevant in the sense of having no significant, predictable effects on corporate market values. Another school of thought holds that corporate financing choices reflect an attempt by corporate managers to balance the tax shields and disciplinary benefits of more debt against the costs of financial distress. Still another theory says that companies do not have capital structure targets, but instead follow a financial pecking order in which retained earnings are generally preferred to outside financing, and debt is preferred to equity when outside funding is required.

Journal

Journal of Applied Corporate FinanceWiley

Published: Mar 1, 2020

There are no references for this article.