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Absence of an Optimal Capital Structure in the Famous Tradeoff Theory!

Author

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  • P.N. Brusov

    (Financial University Under the Government of Russian Federation)

  • T.V. Filatova
  • N.P. Orekhova

Abstract

Within modern theory of capital structure and capital cost by Brusov-Filatova-Orekhova the analysis of wide known tradeoff theory has been made. It is shown that suggestion of risky debt financing (and growing credit rate near the bankruptcy) in opposite to waiting result does not lead to growing of weighted average cost of capital, WACC, which still decreases with leverage. This means the absence of minimum in the dependence of WACC on leverage as well as the absence of maximum in the dependence of company capitalization on leverage. Thus, it seems that the optimal capital structure is absent in famous tradeoff theory. The explanation to this fact has been done

Suggested Citation

  • P.N. Brusov & T.V. Filatova & N.P. Orekhova, 2013. "Absence of an Optimal Capital Structure in the Famous Tradeoff Theory!," Journal of Reviews on Global Economics, Lifescience Global, vol. 2, pages 94-116.
    • Handle: RePEc:lif:jrgelg:v:2:y:2013:p:94-116
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    Citations

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    Cited by:

    1. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Capital Structure Theory: Past, Present, Future," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 9-50, Springer.
    2. Sadiq, Misbah & Yousaf, Sheikh Usman & Anser, Muhammad Khalid & Rashid Khan, Haroon ur & Sriyanto, Sriyanto & Zaman, Khalid & Van Tu, Duong & Anis, Siti Nisrin Mohd, 2023. "The role of debt financing in the relationship between capital structure, firm’s value, and macroeconomic factors: To throw caution to the wind," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 212-223.
    3. Peter Brusov & Tatiana Filatova, 2021. "The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit," Mathematics, MDPI, vol. 9(11), pages 1-25, May.
    4. R. Ibragimov G. & G. Panferov A. & Р. Ибрагимов Г. & Г. Панферов А., 2014. "Обобщение Теории Модильяни-Миллера: Миф И Реальность // Generalization Of The Modigliani-Miller Theory: Myth And Reality," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, issue 3, pages 114-122.
    5. Ramzi DRISSI, 2023. "Empirical Analysis of Unlisted Companies' Valuation Using Discounted Cash Flow Methods ," GATR Journals jfbr213, Global Academy of Training and Research (GATR) Enterprise.
    6. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2014. "Mechanism of formation of the company optimal capital structure, different from suggested by trade off theory," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-13, December.

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