Under condition proved by us, insolvency of well-known classical trade-off theory and question of finding new mechanisms of formation of the company’s optimal capital structure, different from the one suggested by trade-off theory, becomes very important One of the real such mechanisms is developed by us in this chapter It is based on the decrease of debt cost with leverage, which is determined by growth of debt volume This mechanism is absent in perpetuity Modigliani–Miller theory, even in modified version, developed by us, and exists within more general modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (BFO theory)

https://www.tandfonline.com/doi/pdf/10.1080/23322039.2014.946150

Mechanism of formation of the company optimal capital structure, different from suggested by trade off theory

Within modern theory of capital structure and capital cost by Brusov-Filatova-Orekhova the analysis of wide known tradeoff theory has been made. It is shown that suggestion of risky debt financing (and growing credit rate near the bankruptcy) in opposite to waiting result does not lead to growing of weighted average cost of capital, WACC, which still decreases with leverage. This means the absence of minimum in the dependence of WACC on leverage as well as the absence of maximum in the dependence of company capitalization on leverage. Thus, it seems that the optimal capital structure is absent in famous tradeoff theory. The explanation to this fact has been done.

Absence of an Optimal Capital Structure in the Famous Tradeoff Theory

Paper is devoted to describe the new meaningful effects in capital structure theory, discovered within modern theory of capital cost and capital structure, created by Brusov, Filatova and Orekhova (BFO theory). These qualitatively new effects are present in general version of BFO theory and absent in its perpetuity limit (Modigliani – Miller theory). BFO theory has changed some main existing principles of financial management. Discovered effects modify our understanding of financial management and dictate some unusual managerial decisions.

https://ns1.6thsigmahosting.com/pms/index.php/jrge/article/download/5279/2961

New Meaningful Effects in Modern Capital Structure Theory

The purpose of this paper is to measure the impact of internal and external corporate governance mechanisms on the financial performance of banks in the under-researched Middle Eastern and North African (MENA) region during the COVID-19 pandemic period. Bank annual reports, the Orbis Bank Focus database, and World Bank reports were used to collect both financial and non-financial information on the banking sector, followed by fixed effects regressions and two-stage least squares. Results showed that the corporate governance measures of presence of independent members on the board of directors, high ownership concentration, lack of political pressure on board members, and strong legal protection, had positive effects on bank financial performance. Corporate governance mechanisms, such as performance-based compensation, the presence of women on boards, moderate size of the board, and anti-takeover mechanisms had no significant impact on bank performance during the crisis period. An effective internal and external corporate governance mechanism could improve the financial performance of banks in MENA countries in times of pandemics and crises.

/pdf/the-impact-of-corporate-governance-on-the-financial-pn2ow5l3.pdf

The Impact of Corporate Governance on the Financial Performance of the Banking Sector in the MENA (Middle Eastern and North African) Region: An Immunity Test of Banks for COVID-19

Hopes of ending the financial crisis did not materialize. Recent events (the problems of the euro zone, the threat of default in the U.S., the collapse of the financial market after a reduction of the credit rating of the U.S., debt problems in the world (Europe, U.S.), U.S. fiscal cliff, etc.) show that the crisis deepened, affecting new areas and taking on a systemic character. It becomes clear that we need in-depth analysis of its general, systemic causes. This article examines recent results in this field, obtained by scientists of Finance University under the Russian Federation Government.

The Global Causes of the Global Financial Crisis

Modern Corporate Finance, Investments and Taxation

The first serious study (and first quantitative study) of influence of capital structure of the company on its indicators of activities was the work by Nobel Prize Winners Modigliani and Miller Their theory has a lot of limitations One of the most important and seriouse assumptions of the Modigliani – Miller theory is that all financial flows as well as all companies are perpetuity This limitation was lift out by Brusov–Filatova–Orekhova in 2008 (Filatova et al 2008), who have created BFO theory – modern theory of capital cost and capital structure for companies of arbitrary age
 Despite the fact that the Modigliani–Miller theory is currently a particular case of the general theory of capital cost and capital structure – Brusov–Filatova–Orekhova (BFO) theory – it is still widely used at the West
In current paper we discuss one more limitation of Modigliani – Miller theory: a method of tax on profit payments Modigliani – Miller theory accounts these payments as annuity–immediate while in practice these payments are making in advance and thus should be accounted as annuity–due
We generalize the Modigliani–Miller theory for the case of advance payments of tax on profit, which is widely used in practice, and show that this leads to some important consequencies, which change seriously all the main statements by Modigliani and Miller These consequencies are as following: WACC starts to depend on debt cost kd, WACC turns out to be lower than in case of classical Modigliani–Miller theory and thus company capitalization becomes higher than in ordinary Modigliani–Miller theoryWe show that dependence of equity cost on leverage level L is still linear, but the tilt angle with respect to L–axis turns out to be smaller: this could lead to modification of the divident policy of the company
Correct account of a method of tax on profit payments demonstrates that shortcomings of Modigliani – Miller theory are dipper, than everybody suggested: the underestimation of WACC really turns out to be bigger, as well as overestimation of the capitalization of the company This means that systematic risks arising from the use of modified Modigliani – Miller theory (MMM theory) (which is more correct than "classical' one) in practice are higher than it was suggested by the "classical" version of this theory

Natali Orekhova

Papers

Mechanism of formation of the company optimal capital structure, different from suggested by trade off theory

Modern Corporate Finance, Investments and Taxation

Absence of an Optimal Capital Structure in the Famous Tradeoff Theory

Modification of the Modigliani–Miller Theory for the Case of Advance Payments of Tax on Profit

New Meaningful Effects in Modern Capital Structure Theory