3. Classification, Discussion, and Summary of Hypothesis
The researchers have captured a number of factors determining firm’s leverage. In this section, we report the factors identified in the published literature under different theoretical framework propounded over the period by the researchers.
。分类，讨论和总结的假说
研究人员已经抓获了确定公司的杠杆因素。在本节中，我们发表的文献报告中确定的根据不同的理论在研究期间所propounded框架的因素。
3.1. The leverage “irrelevance” framework 3.1。
The genesis of research in the area started with the seminal paper of Modigliani and Miller (1958). Modigliani and Miller (1958) in their seminal paper “The cost of capital, corporation finance, and the theory of investment” demonstrated that in the absence of transaction cost, no tax subsidies on the payment of interest, and the same rate of interest of borrowing by individuals and corporations, firm value is independent of its leverage and is given by capitalizing the expected return at the rate appropriate to that asset class.
Modigliani and Miller (1958) concluded that a firm cannot increase its value by using leverage as part of its capital structure. The traditional belief was that the capital structure of the firm is determined by the rate of interest on bonds, so the firm will push the investment to the point where the marginal rate of yield on physical assets equals the market rate of interest. Hence a firm can increase its market value by generating yield on assets that exceeds the market rate of interest. Modigliani and Miller (1958) challenged the traditional notion that a firm can increase its value by using debt4 as part of its capital structure. Ghosh et. al. (1996) investigated the valuation effects of exchangeable debt calls and indicated that the shareholders of firms calling exchangeable debt do not experience any significant changes in wealth. They found that the negative effect of a decrease in leverage due to the call is offset by the calling firm's change in asset composition. Current empirical researches documented significant decline in equity prices both around the announcement of a new equity issue and for the immediately本文来自优.文,论-文·网原文请找腾讯3249.114 subsequent years and validated Modigliani and Miller argument.
3.2. Static trade -off framework: tax benefit and bankruptcy costs
As we have discussed above, payment of interest on debt is a mandatory charge on the business of the firm, which is allowed as expenses for tax purpose. As a result, the presence of bankruptcy cost5 and favorable tax treatment of interest payment led to the development of static trade off framework. The framework was first propounded in 1984 (Myers and Majluf, 1984). The proponents of static trade-off model argues that firms balance debt and equity positions by making trade-offs between the value of tax shields on interest, and the cost of bankruptcy or financial distress. In other words, keeping other things constant, higher the cost of bankruptcy, lower the debt and vice versa. Secondly, keeping other things constant, higher the maximum marginal rate of tax, higher the debt and vice versa. on financing, is greater than zero.接待方案
Consequently, they proposed that firms in goods producing industries will have a higher debt to equity mix than will firms in service industries. Rajan and Zingales (1995) proposed that one cannot easily dismiss the possibility that taxes influence aggregate corporate leverage. Other results that support the static trade off model include Farrino & Weisbach (1999), Cassar & Holmes (2003), Morellec & Smith (2003). Morellec (2004), and Parrino & Weisbach (2005). The researchers have also observed result inconsistent with the prediction of static trade off theory. Fama and French (1998), despite an extensive statistical research, could find no indication that debt has net tax benefit. Bagley et. al. (1998) critiqued the static tradeoff theory for it does not explicitly treat the impact of transaction costs; does not explain the policy of asymmetry between frequent small debt transactions and infrequent large equity transactions; does not explain why the debt ratio is allowed to wander a considerable distance from its alleged static optimum, or how much of a distance should be tolerated.
In short, static trade off theory offers a partial explanation of the factors determining firm's choice of leverage.