Bankruptcy Risk and Optimal Capital Structure

Article Abstract:

Previous tests of capital structure irrelevancy are faulted. The inclusion of bankruptcy costs show that capital structure does affect the value of a firm. Firms that have a high failure rate tend to have less debt in their capital structure. A firm will hold an optimum mix of debt and equity because of ex ante bankruptcy costs.

Testing, Hypothesis, Hypothesis (Logic)

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The Valuation of Assets under Moral Hazard

Article Abstract:

Managerial contracts and asset pricing is examined in a capital market setting. Economic agents are risk averse and managerial action can affect asset returns managers will be insured against risk in the absence of moral hazard. Under moral hazard contracts will be negotiated to compensate accordingly.

Management, Contracts

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Screening, Market Signalling, and Capital Structure Theory

Article Abstract:

A capital market model is developed to utilize signalling and screening to provide information about product quality. A bond valuation schedule is developed from costly information about earnings distribution. The firms choice of debt-equity ratio provides information to shareholders.

Finance, Economics

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