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Optimal Capital Structure Under Corporate and Personal Taxation
TLDR
In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium prices of debt and equity.Abstract:
In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium prices of debt and equity. The presence of corporate tax shield substitutes for debt such as accounting depreciation, depletion allowances, and investment tax credits is shown to imply a market equilibrium in which each firm has a unique interior optimum leverage decision (with or without leverage-related costs). The optimal leverage model yields a number of interesting predictions regarding cross-sectional and time-series properties of firms’ capital structures. Extant evidence bearing on these predictions is examined.read more
Citations
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The Determinants of Capital Structure Choice
TL;DR: In this paper, the explanatory power of some of the recent theories of optimal capital structure is analyzed empirically and a factor-analytic technique is used to mitigate the measurement problems encountered when working with proxy variables.
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The investment opportunity set and corporate financing, dividend, and compensation policies☆
Clifford W. Smith,Ross L. Watts +1 more
TL;DR: The authors examine explanations for corporate financing-, dividend-, and compensation-policy choices and find that contracting theories are more important in explaining cross-sectional variation in observed financial, dividend, and compensation policies than either tax-based or signaling theories.
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The Determinants of Firms' Hedging Policies
Clifford W. Smith,René M. Stulz +1 more
TL;DR: In this article, the authors develop a positive theory of the hedging behavior of value-maximizing corporations, treating hedging by corporations simply as one part of the firm's financing decisions.
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On the existence of an optimal capital structure: theory and evidence
TL;DR: In this article, the authors show that if there are significant "leverage-related" costs, such as bankruptcy costs, agency costs of debt, and loss of non-debt tax shields, then the marginal bondholder's tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing.
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Capital Structure Decisions: Which Factors Are Reliably Important?
Murray Z. Frank,Vidhan K. Goyal +1 more
TL;DR: This article examined the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003 and found that the most reliable factors for explaining market leverage are: median industry leverage, market-to-book assets ratio (−), tangibility (+), profits (−), log of assets (+), and expected inflation (+).
References
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Journal Article
The Cost of Capital, Corporation Finance and the Theory of Investment
TL;DR: In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.
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Determinants of corporate borrowing
TL;DR: In this article, the authors predict that corporate borrowing is inversely related to the proportion of market value accounted for by real options and rationalize other aspects of corporate borrowing behavior, such as the practice of matching maturities of assets and debt liabilities.
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Dividend Policy, Growth, and the Valuation of Shares
TL;DR: In this paper, the effect of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty is examined.
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Debt and taxes
TL;DR: Miller et al. as discussed by the authors presented a paper on the thirty-fiveth annual meeting of the American Finance Association, Atlantic City, New Jersey, September 16-18, 1976 (May, 1977), pp. 261-275.