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The hidden value behind capital structure decisions
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Resumo(s)
I estimate the optimal capital structure for a growth company, for which market value is
dictated by its highly volatile nature. I study the welfare impact of corporate taxes,
analyzing their economic effect of inducing higher bankruptcy levels. Assuming that
management always seeks to optimize the market value of company’s assets, I find a
significant loss of value that varies negatively with volatility. Flow and stock insolvency are
important for the maximization of capital structure, and I compare both, modeling the
value of the company as an option on its revenues. These are not only highly significant for
R&D and startup companies but also have significant welfare consequences. I compare the
options of liquidation and re-financing and find a clearly important role of early liquidation
for R&D frameworks. I complement the study with a comparative statics analysis
estimating the impact of risk to the value of the firm and the optimal capital structure
decision, for a cross-section of firms. The results present quantitative evidence that
reinforce the literature of trade-off and capital structure applied to growth companies.
Descrição
A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics
Palavras-chave
Capital structure Real options R&D valuation Simulation