A Dynamic Optimal Capital Structure Modelith Costly Adjustment Mechanisms
Date Issued
2008
Date
2008
Author(s)
Tung, Yi-Hsuan
Abstract
This paper develops a dynamic capital structure model with costly adjustment mechanisms. Based on an exogenous cash flow process, the model can endogenously determine the firm value and the claim value of firm’s derivative security under optimal debt level. The model considers costs of adjustments in capital structure, including a fixed cost element and a proportional one, which have significant effect on the frequency of adjustments in capital structure by a firm. The numerical results of simulation analysis of our model are consistent with those expected in literature and intuition.
Subjects
Optimal capital structure
Adjustment costs
Type
thesis
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