 Valuation implications of capital structure: a contextual approachBegona Giner and Carmelo Reverte European Accounting Review, 2001, vol. 10, issue 2, 291-314 Abstract: In this paper, the Ohlson (1995) valuation model is used to analyse the informative value of firm capital structure, decomposing the book value of equity in its two main components (i.e., total assets and liabilities) in order to test whether investors price them in a different way. We adopt a contextual approach and analyse the value relevance of debt taking into account the signalling and 'optimal' financial structure theories as well as the relationship between the cost of debt and return on investment. The sample used comprises all the non-financial Spanish firms listed in the Madrid Stock Exchange during the period 1991-7. Our results seem to support the 'optimal' capital structure theory since departures of the debt-to-equity ratio from its 'optimal' (or target) level are negatively perceived by the market. The debt valuation parameter is higher (lower) for those firms with a cost of debt above (below) return on investment. In addition, and consistent with the signalling theory, debt seems to be a positive signal for firms facing good prospects. This effect is strongly significant for those cases in which return on investment exceeds the cost of debt. Date: 2001 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:euract:v:10:y:2001:i:2:p:291-314 Ordering information: This journal article can be ordered from Access Statistics for this article European Accounting Review is currently edited by Laurence van Lent More articles in European Accounting Review from Taylor & Francis Journals |
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