Costless Capital Requirements

Raphael Flore

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: Arguments for costs of capital requirements in the long run are based on trade-off theories of capital structure. This paper provides a critical assessment of these theories by studying how the optimal capital structure can be modified, when a firm uses the financial markets to alter its cash flow distribution. I show that, for any initial set of assets, the implementation of a certain fund structure allows the firm to reduce its leverage and its bankruptcy probability without a loss of value.

JEL-codes: G10 G28 G30 G32 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168226

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