Capital structure, principal/agency--Relation and the value of the corporation: A simulation study

T Landes and O Loistl

Omega, 1991, vol. 19, issue 4, 291-303

Abstract: We assume that a corporation yields an uncertain stream of future earnings devoted to meet the contractual payments to creditors and dividends to shareholders. Fluctuating earnings and fixed obligations of payment embody a risk of illiquidity which might lead to bankruptcy. According to the principal/agency-approach, different capital structures might therefore lead to different streams of earnings. Relying on the present-value concept, these conclusions imply that the value of the corporation and especially that of equity is influenced by its capital structure. The implications of the model will be checked against the situation of three major German companies. It is shown that the computational results are compatible with the empirical observed quotations of share price.

Keywords: value; of; a; corporation; stochastic; simulation; bankruptcy; moratoriums (search for similar items in EconPapers)
Date: 1991
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/0305-0483(91)90046-V
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:19:y:1991:i:4:p:291-303

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().