Absence of an Optimal Capital Structure in the Famous Tradeoff Theory!

Peter Brusov, Tatiana Filatova () and Natali Orekhova

Journal of Reviews on Global Economics, 2013, vol. 2, 94-116

Abstract: Within modern theory of capital structure and capital cost by Brusov-Filatova-Orekhova the analysis of wide known tradeoff theory has been made. It is shown that suggestion of risky debt financing (and growing credit rate near the bankruptcy) in opposite to waiting result does not lead to growing of weighted average cost of capital, WACC, which still decreases with leverage. This means the absence of minimum in the dependence of WACC on leverage as well as the absence of maximum in the dependence of company capitalization on leverage. Thus, it seems that the optimal capital structure is absent in famous tradeoff theory. The explanation to this fact has been done

Keywords: Tradeoff theory; debt financing; company capital cost; optimal capital structure; leverage; Modigliani– Miller theory; Brusov–Filatova–Orekhova theory (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.lifescienceglobal.com/home/cart?view=product&id=526 (text/html)

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:lif:jrgelg:v:2:y:2013:p:94-116

Access Statistics for this article

Journal of Reviews on Global Economics is currently edited by Michael McAleer and Chia-Lin Chang

More articles in Journal of Reviews on Global Economics from Lifescience Global
Bibliographic data for series maintained by Faisal Ameer Khan ( this e-mail address is bad, please contact ).