Showing papers on "Financial risk published in 1971"

The dynamics of corporate debt management

Abstract: During the last two decades wide attention has been given in the literature to the problem of "optimal capital structure" of a firm, that is, to the ratio of its debt to its equity. While it appears that two major theories have evolved, neither of the two has been fully accepted or rejected. On the other hand, they both seem to agree that a "target" capital structure exists to which the firm tends to adjust over time. Starting from this point, a less broad but nevertheless important problem deserves full attention: given the capital structure of the firm which is the "target" debt/equity ratio, what should be the proportion of short term to long term debt? Specifically, if the debt/equity ratio is a measurement of the so-called financial risk, how can this risk be controlled over a given planning horizon by a combination of different maturity debt issues? Or is it not true then that the age composition of debt provides a new dimension of financial risk? The goal of this study is two-fold: