A New Capital Structure Theory: The Four-Factor Model

Anton Miglo

MPRA Paper from University Library of Munich, Germany

Abstract: This article presents a new capital structure model based on four factors well documented in literature: asymmetric information, taxes, bankruptcy costs and decision-makers' overconfidence. The model can simultaneously explain several facts about capital structure including those that remain puzzling from existing theories point of view eg. negative correlation between debt and profitability; why firms issue equity etc. Unlike many advanced research on capital structure, a closed-form solution is obtained for most results.

Keywords: capital structure; asymmetric information; overconfidence; debt tax shield; bankruptcy costs (search for similar items in EconPapers)
JEL-codes: D81 D82 D84 D86 G32 (search for similar items in EconPapers)
Date: 2021-01-03
New Economics Papers: this item is included in nep-cfn and nep-cwa
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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