theoretical models of the firm in the presence of asymmetric information, I explore how a financial firm’s capital budgeting, incentive compensation, capital structure, and risk management activities are likely to change as it becomes less costly to assemble risk information. I also explore the likely effects of the falling cost of assembling risk information on a financial firm’s organizational structure. Two common themes emerge: centralization within the firm and increased disclosure of risk information
Words: 4467 - Pages: 18
across the board. The table 5.1 contains various cost of debts based on various capital structures. In this table we estimate value of operations, value of debt, value of equity, stock price, net income and earnings per share of the firm for various capital structures. Our objective here is to identify the optimum capital structure for the firm. {draw:frame} Table 5.1 – Cost of Debt for various Capital Structures We used the Hamada equation to estimate the impact of the financial leverage
Words: 545 - Pages: 3
GM, L&D, let me present the article “Market Timing and Capital Structure” which was published in “The Journal of Finance” by MALCOLM BAKER and JEFFREY WURGLER in 2002. The authors believe that the idea from their work “has not been articulated before”. In this paper, the authors ask how equity market timing affects capital structure. The basic question is whether market timing has a short-run or a long-run impact. One expects at least a mechanical, short-run impact. However, if firms s’ubsequently
Words: 511 - Pages: 3
Case Study – Intel Why has Intel been so successful in recent years? What are the pros and cons of Intel’s current competitive position? Historically, Intel has been successful because of their innovation. They were responsible for 16 of the 22 major breakthroughs in microelectronics between the years 1971 and 1981; and because of these early successes Intel has been able to remain a major competitor in the technology industry. By 1991, Intel was the world’s second-largest manufacturer of
Words: 974 - Pages: 4
Abstract In this study, we extend Miller’s (1977) capital structure analysis by adding potentially high personal taxes on dividends and share repurchases, and by focusing on mature firms with at least some pre-existing equity. We demonstrate that personal taxes on equity distributions push new equity financing to an inferior corner, but they do not push internal equity (i.e., reinvested free cash flows) to a corner. Therefore an interior capital structure solution remains, in which firms are indifferent
Words: 9981 - Pages: 40
energy capacity, which is understood as the company’s combined intellectual and material capital; and gives a formalized presentation of the company’s optimal state of equilibrium. It is suggested that the integration of companies with intellectual and material components of different levels does not always result in an increase in value. JEL Codes: D21, G32, G34. Keywords: intellectual capital, material capital, integration processes, companies’ competitive energy capacity. Introduction The development
Words: 3955 - Pages: 16
Publishing Company THEORY OF THE FIRM: MANAGERIAL BEHAVIOR, AGENCY COSTS AND OWNERSHIP STRUCTURE Michael C. JENSEN and William H. MECKLING* University of Rochester, Rochester, NY 14627, U.S.A. Received January 1976, revised version received July 1976 This paper integrates elements from the theory of agency. the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation
Words: 27266 - Pages: 110
Section A: Objective Type & Short Questions (30 marks) Part one: Multiple choices: 1. D - Ignored Routine Problems. 2. C - Redeemable Preference Shares. 3. A - Political Risk. 4. A - Future Cost 5. C - Designing optimal corporate capital structure. 6. B - Firms point. 7. D - Agency costs 8. A - Legal Requirement. 9. B - Default Risk. 10. A - Beta. Part two: 1. Wealth maximization is a modern approach to financial management. Wealth maximization simply means
Words: 1763 - Pages: 8
1.0 Introduction Capital markets are a major source of finance for large companies engaging in investment projects. Successful investment projects can bring tremendous returns to shareholders in the form of dividend payment and increased share value. However, the source of finance affects a company’s overall cost of capital and by extension its dividends to shareholders. This report addresses the importance of the capital market and the efficient market hypothesis theories. The various source of
Words: 4989 - Pages: 20
finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as a whole and for each divisions as part of annual capital budgeting process but this estimates were often
Words: 1045 - Pages: 5
