Optimal Capital Structure for Maximizing the Firm Value

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Author(s): Rumeysa Bilgin (Istanbul Sabahattin Zaim University, Turkey)
Copyright: 2020
Pages: 19
Source title: Valuation Challenges and Solutions in Contemporary Businesses
Source Author(s)/Editor(s): Sinem Derindere Köseoğlu (Independent Researcher, Turkey)
DOI: 10.4018/978-1-7998-1086-5.ch003

Keywords: Business & Management / Business and Organizational Research / Business Science Reference / Risk Management & Analysis

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Abstract

Capital structure decisions of management affect the value of a firm. This fact leads to the creation of an extremely rich capital structure literature over the last 60 years. This chapter explains main theories of capital structure and discusses the concept of target leverage which maximizes the firm value. The roles of tax payments, profitability, firm size, asset tangibility, growth opportunities, income volatility, and non-debt tax shields are examined as determinants of capital structure. The current status of capital structure research and some important empirical issues are discussed. Considerations for future research are presented.

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Optimal Capital Structure for Maximizing the Firm Value

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