{"id":507,"date":"2014-06-26T16:12:13","date_gmt":"2014-06-26T16:12:13","guid":{"rendered":"http:\/\/zh.aceessays.com\/tc\/?p=507"},"modified":"2015-01-18T20:41:06","modified_gmt":"2015-01-18T20:41:06","slug":"market-imperfections","status":"publish","type":"post","link":"https:\/\/www.aceessays.com\/tc\/market-imperfections\/","title":{"rendered":"Market imperfections"},"content":{"rendered":"<h3>Market imperfections<\/h3>\n<ul>\n<li>M&amp;M relaxed assumption of perfect capital market by considering corporate taxation.<\/li>\n<li>If we relax perfect market assumption further by considering bankruptcy risk, an optimal capital structure emerges.<\/li>\n<li>Companies have to balance the tax efficiency of debt with the risk of bankruptcy.<\/li>\n<\/ul>\n<ul>\n<li>As company gears up, tax shield from interest payments increases the value of the company.<\/li>\n<li>At gearing level X, shareholders start to want higher return to compensate for increasing bankruptcy risk and agency.<\/li>\n<li>Beyond gearing level Y, tax benefits are more than outweighed by bankruptcy and agency costs and so Y is the optimal level of gearing.<\/li>\n<\/ul>\n<h3>Optimal capital structure<\/h3>\n<p>Conclusions:<\/p>\n<ul>\n<li>Traditional approach: OCS exists<\/li>\n<li>Miller and Modigliani I: no OCS is found<\/li>\n<li>Miller and Modigliani II: OCS is 100% debt<\/li>\n<li>Market imperfections: OCS exists<\/li>\n<li>In practice, rather than one optimal capital structure existing for each firm, a range of optimal capital structures may exist.<\/li>\n<\/ul>\n<h3>A practical view<\/h3>\n<p>Essay writing tips: <a href=\"http:\/\/www.aceessays.com\/tc\/\">\u8ad6\u6587\u4ee3\u5beb<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Market imperfections M&amp;M relaxed assumption of perfect capital market by considering corporate taxation. If we relax perfect market assumption further by considering bankruptcy risk, an optimal capital structure emerges. Companies have to balance the tax efficiency of debt with the risk of bankruptcy. As company gears up, tax shield from interest payments increases the value of the company. At gearing level X, shareholders start to want higher return to compensate for increasing bankruptcy risk and agency. Beyond gearing level Y, tax benefits are more than outweighed by bankruptcy and agency costs and so Y is the optimal level of gearing. Optimal capital structure Conclusions: Traditional approach: OCS exists Miller and Modigliani I: no OCS is found Miller and Modigliani II: OCS is 100% debt Market imperfections: OCS exists In practice, rather than one optimal capital structure existing for each firm, a range of optimal capital structures may exist. A practical<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":["post-507","post","type-post","status-publish","format-standard","hentry","category-notes"],"_links":{"self":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/507","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/comments?post=507"}],"version-history":[{"count":1,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/507\/revisions"}],"predecessor-version":[{"id":1529,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/507\/revisions\/1529"}],"wp:attachment":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/media?parent=507"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/categories?post=507"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/tags?post=507"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}