Capital Structure and Corporate Financing Decisions: Theory, Evidence, and Practice

The Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals. As part of the Robert W. Kolb Series in Finance, Capital Structure and Corporate Financing Decisions contains comprehensive insights on a major aspect of financial management how capital structure and financing decisions contribute to maximizing the value of a firm.

While determining the precise financing mix to achieve this goal can be difficult, firms need to revisit their portfolio of debt, equity, and hybrid securities to successfully finance assets, operations, and future growth. That is why becoming familiar with this subject is essential.

Divided into four comprehensive parts, this timely guide contains detailed coverage that extends from the basic components of capital structure and existing theories to their application in an increasingly complex business world. Page by page, the book addresses topics that will put you in a better position to excel at this endeavor, including how corporate managers make financing decisions in practice; the economic, regulatory, and industry effects on capital structure; and the various aspects of raising capital to name a few.

Sound capital structure and informed financing decisions can lead to a reduction in a firm′s cost of capital and an increase in shareholder value. Developing the critical skills required to make these decisions takes time, but with this book as your guide, you will gain a firm understanding of what you will need to succeed.

Acknowledgments ix

1 Capital Structure: An Overview 1
H. Kent Baker and Gerald S. Martin

PART I The Elements of Capital Structure 15

2 Factors Affecting Capital Structure Decisions 17
Wolfgang Bessler, Wolfgang Drobetz, and Robin Kazemieh

3 Capital Structure and Corporate Strategy 41
Maurizio La Rocca

4 Capital Structure and Firm Risk 59
Valentin Dimitrov

5 Capital Structure and Returns 75
Yaz Gulnur Muradoglu and Sheeja Sivaprasad

6 Capital Structure and Compensation 93
Alan Victor Scott Douglas

7 Worldwide Patterns in Capital Structure 111
Carmen Cotei and Joseph Farhat

PART II Capital Structure Choice 127

8 Capital Structure Theories and Empirical Tests: An Overview 129
Stein Frydenberg

9 Capital Structure Irrelevance: TheModigliani–Miller Model 151
Sergei V. Cheremushkin

10 Trade–Off, Pecking Order, Signaling, and Market Timing Models 171
Anton Miglo

11 Estimating Capital Costs: Practical Implementation of Theory′s Insights 191
Robert M. Conroy and Robert S. Harris

12 Economic, Regulatory, and Industry Effects on Capital Structure 211
Paroma Sanyal

13 Survey Evidence on Financing Decisions and Cost of Capital 229
Franck Bancel and Usha R. Mittoo

14 Survey Evidence on Capital Structure: Non–U.S. Evidence 249
Abe de Jong and Patrick Verwijmeren

PART III Raising Capital 261

15 The Roles of Financial Intermediaries in Raising Capital 263
Neal Galpin and Heungju Park

16 Bank Relationships and Collateralization 281
Aron A. Gottesman and Gordon S. Roberts

17 Rating Agencies and Credit Insurance 299
John Patrick Hunt

18 Secured Financing 319
Hugh Marble III

19 Sale and Leasebacks 335
Kyle S. Wells

PART IV Special Topics 351

20 Financial Distress and Bankruptcy 353
Kimberly J. Cornaggia

21 Fiduciary Responsibility and Financial Distress 371
Remus D. Valsan and Moin A. Yahya

22 The Lease versus Buy Decision 387
Sris Chatterjee and An Yan

23 Private Investment in Public Equity 401
William K. Sjostrom Jr.

24 Financing CorporateMergers and Acquisitions 419
Wolfgang Bessler, Wolfgang Drobetz, and Jan Zimmermann

Answers to Chapter Discussion Questions 445

Index 475

H. KENT BAKER, PhD, CFA, CMA, is University Professor of Finance and Kogod Research Professor at the Kogod School of Business at American University, Washington, D.C. He has published extensively in leading academic and professional finance journals including the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, and Journal of Portfolio Management. Recognized as one of the most prolific authors in finance during the past fifty years, Professor Baker has consulting and training experience with more than 100 organizations and has been listed in fifteen biographies.

GERALD S. MARTIN, PhD, is an Associate Professor of Finance at the Kogod School of Business at American University, Washington, D.C. He has published in top scholarly journals, including the Journal of Financial Economics and Journal of Financial and Quantitative Analysis. Before embarking on his academic career, Professor Martin spent seventeen years in the private sector as president and CEO of TMI Aircraft Finance/TMI Leasing, LLC, financing aircraft and aviation products worldwide for Textron Financial Corporation, as well as in marketing and research at Bell Helicopter Textron Inc.