Optimum Capital Structure Redefined

Dilip K Ghosh

The Financial Review, 1992, vol. 27, issue 3, 411-29

Abstract: Within a dynamic framework of capital growth and income generation, optimum capital structure of a firm is redefined under two alternative hypotheses. By the optimum control theory, it is shown that under conditions of perfect competition optimum equity/debt ratio of a firm can be uniquely determined in intertemporal maximization models of investor behavior. The result is new, but it is juxtaposed in the vast body of existing literature and finally compared with the J. Lintner (1963, 1964)-R. Sau (1969) and F. Modigliani-M. Miller (1958, 1961) models. Copyright 1992 by MIT Press.

Date: 1992
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