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Optimum Capital Structure Redefined
Author(s) -
Ghosh Dilip K.
Publication year - 1992
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1992.tb01325.x
Subject(s) - capital structure , economics , maximization , microeconomics , cost of capital , capital (architecture) , debt , weighted average cost of capital , equity (law) , econometrics , capital formation , financial capital , finance , profit (economics) , archaeology , political science , law , history
Within a dynamic framework of capital growth and income generation, optimum capital structure of a firm is redefined under two alternative hypotheses. By the optimum control theory, it is shown that under conditions of perfect competition optimum equity/debt ratio of a firm can be uniquely determined in intertemporal maximization models of investor behavior. The result is new, but it is juxtaposed in the vast body of existing literature and finally compared with the Lintner‐Sau and Modigliani‐Miller models.