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Bankruptcy, interest tax shields and ‘optimal’ capital structure: A cash flow formulation
Author(s) -
Schnabel Jacques A.
Publication year - 1984
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090050210
Subject(s) - capital structure , cash flow , bankruptcy , economics , monetary economics , debt , tax shield , capital (architecture) , finance , tax reform , public economics , state income tax , archaeology , history , gross income
This paper presents a cash flow formulation of the capital structure problem in the presence of corporate taxes. In contrast to the classic result of Modigliani and Miller, it is shown that an optimal capital structure does not involve exclusive reliance on debt financing.