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Capital Structure

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The Palgrave Encyclopedia of Strategic Management

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Abstract

Franco Modigliani and Merton Miller proposed that, in ‘perfect’ markets, a firm’s capital structure is irrelevant to its value. Subsequent research introduced real-world frictions such as taxes, bankruptcy costs, agency costs and informational asymmetry into the analysis, resulting in additional theories of optimal capital structure such as the trade-off, pecking order, free cash flow, asset substitution and debt overhang theories. Ultimately, one would expect firms to strategically pursue a capital structure that maximizes the value of the firm.

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Author information

Authors and Affiliations

  1. Berkeley Research Group, LLC, Los Angeles, CA, USA

    C. Paul Wazzan

Authors
  1. C. Paul Wazzan
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Correspondence to C. Paul Wazzan .

Editor information

Editors and Affiliations

  1. Stanford University , Stanford, California, USA

    Mie Augier

  2. Tusher Ctr Intellectual Capital, University of California Tusher Ctr Intellectual Capital, Berkeley, California, USA

    David J. Teece

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© 2016 The Author(s)

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Wazzan, C.P. (2016). Capital Structure. In: Augier, M., Teece, D. (eds) The Palgrave Encyclopedia of Strategic Management. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-94848-2_667-1

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  • DOI: https://doi.org/10.1057/978-1-349-94848-2_667-1

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  • Publisher Name: Palgrave Macmillan, London

  • Online ISBN: 978-1-349-94848-2

  • eBook Packages: Springer Reference Business and ManagementReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

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