Home  Journals  Finance and Credit  30(558) - 2013 August

Is there an optimal capital structure in famous "theory of compromise"?

Available online: 19 August 2013

Subject Heading: CAPITAL THEORY

JEL Classification: 

In the article within the framework of the modern theory of cost and structure of the capital of the company of Brusova–Filatovoy–Orekhovoy the analysis of widely known theory of a compromise (trade off theory) is carried out. It is noted that the assumption of risk-taking of loan financing (and the corresponding growth of a rate on the credit at bankruptcy threat) contrary to expectations doesn't lead to growth of the average cost of the capital of WACC which continues to decrease with leverage. It means lack of a minimum in dependence on the average cost of the capital of WACC on leverage and a maximum in dependence of capitalization of the company on leverage. The conclusion is drawn that in the well-known theory of a compromise the optimum structure of the capital is absent. The explanation for this fact is offered.

Keywords: compromise theory, loan financing, capital cost, optimum structure of capital, leverage, Modigliani–Miller's theory, Brusova–Filatovoy–Orekhovoy theory

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ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

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