Inflation in Brusov–Filatova–Orekhova Theory and in Its Perpetuity Limit: Modigliani–Miller Theory

Peter Brusov, Tatiana Filatova and Natali Orekhova
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Tatiana Filatova: Financial University under the Government of Russian Federation
Natali Orekhova: Financial University under the Government of Russian Federation

Chapter Chapter 10 in The Brusov–Filatova–Orekhova Theory of Capital Structure, 2023, pp 185-204 from Springer

Abstract: Abstract In this Chapter, the influence of inflation on capital cost and capitalization of the company within modern theory of capital cost and capital structure—Brusov–Filatova–Orekhova theory (BFO theory) (Brusov et al. Appl Financ Econ 21:815–824, 2011a; Res J Econ Bus ICT 2:16–21, 2011b; Res J Econ Bus ICT (UK) 2:11–15, 2011c; Res J Econ Bus ICT 2: 16–21, 2011d; Appl Financ Econ 22:1043–1052, 2012a; J Rev Glob Econ 1:106–111, 2012b; J Rev Glob Econ 2:94–116, 2013a; J Rev Glob Econ 2:183–193, 2013b; Cogent Econ Financ 2:1–13, 2014a; J Rev Glob Econ 3:175–185, 2014b; Brusov and Filatova, Financ Credit 435:2–8, 2011; Filatova et al. Bull FU 48:68–77, 2008) and within its perpetuity limit—Modigliani–Miller theory (Modigliani and Мiller, Am Econ Rev 48:261–297, 1958; Am Econ Rev 53:147–175, 1963; Am Econ Rev 56:333–391, 1966) is investigated. By direct incorporation of inflation into both theories, it is shown for the first time, that inflation not only increases the equity cost and the weighted average cost of capital, but as well it changes their dependence on leverage. In particular, it increases growing rate of equity cost with leverage. Capitalization of the company is decreased under accounting of inflation.

Keywords: Brusov–Filatova–Orekhova (BFO) theory; Modigliani–Miller theory; Inflation; Debt financing; The weighted average cost of capital; Equity cost; Debt cost; Company capitalization (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27929-4_10

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DOI: 10.1007/978-3-031-27929-4_10

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