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Capital structure is understood as the relationship between equity and debt capital of the company. Does capital structure affect the company’s main settings, such as the cost of capital, profit, value of the company, and the others, and, if it affects, how?
The Modigliani and Miller approach to capital theory, advocates the capital structure irrelevancy theory.
28 sty 2017 · Purpose of this study is to review various capital structure theories that have been proposed in the finance literature to provide clarification for the firms’ capital structure decision.
Capital structure is the permanent financing of the company represented primarily by long-term debt and equity and deciding the suitable capital structure is the important decision of the financial management because it is closely related to the value of the firm.
One of the two main theories of capital cost and capital structure is the theory of Nobel Prize winners Modigliani and Miller (1958, 1963, 1966). In this chapter, we describe the main results of this theory. Under the capital structure, one understands the relationship between equity and debt capital of the company.
Capital Structure Theory: Past, Present, Future Keywords Capital structure · Modigliani–Miller (MM) theory · Brusov–Filatova– Orekhova (BFO) theory · Trade-off theory 2.1 Introduction The capital structure refers to the ratio between the company’s own and borrowed capital.
The Modigliani-Miller (MM) theorems are a cornerstone of finance for two reasons. The first is substantive and it stems from their nature of “irrelevance propositions”: by providing a crystal-clear benchmark case where capital structure and dividend policy do not affect firm value, by implication these propositions help us
