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Some Observations on Capital Structure and the Impact of Recent Recapitalizations on Share Prices

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  • Litzenberger, Robert H.

Abstract

This paper discusses two fundamental issues in capital structure theory and analyzes the recent recapitalizations of Phillips and Unocal. It is shown that a value-maximizing capital structure may be inconsistent with shareholder utility maximization and that the Miller debt and taxes equilibrium may be inconsistent with a complete capital market. In spite of these and other unresolved issues, the markets's reactions to the recent recapitalizations of Phillips and Unocal are consistent with the predictions of capital structure theory. Except for small redistribution effects against bondholders, the recapitalizations per se had no positive impact on common stock values.

Suggested Citation

  • Litzenberger, Robert H., 1986. "Some Observations on Capital Structure and the Impact of Recent Recapitalizations on Share Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(1), pages 59-71, March.
    • Handle: RePEc:cup:jfinqa:v:21:y:1986:i:01:p:59-71_01
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    Cited by:

    1. Bae, Sung C. & Simet, Daniel P., 1998. "A comparative analysis of leveraged recapitalization versus leveraged buyout as a takeover defense," Review of Financial Economics, Elsevier, vol. 7(2), pages 157-172.
    2. Sung C. Bae & Daniel P. Simet, 1998. "A comparative analysis of leveraged recapitalization versus leveraged buyout as a takeover defense," Review of Financial Economics, John Wiley & Sons, vol. 7(2), pages 157-172.

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