THE JOURNAL OF FINANCE • VOL. LIII‚ NO. 4 • AUGUST 1998 Agency Costs‚ Risk Management‚ and Capital Structure HAYNE E. LELAND* ABSTRACT The joint determination of capital structure and investment risk is examined. Optimal capital structure ref lects both the tax advantages of debt less default costs ~Modigliani and Miller ~1958‚ 1963!!‚ and the agency costs resulting from asset substitution ~Jensen and Meckling ~1976!!. Agency costs restrict leverage and debt maturity and increase yield
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OB Definition of ’Organizational Structure’ Explicit and implicit institutional rules and policies designed to provide a structure where various work roles and responsibilities are delegated‚ controlled and coordinated. Organizational structure also determines how information flows from level to level within the company. In a centralized structure‚ decisions flow from the top down. In a decentralized structure‚ the decisions are made at various different levels. http://www.investopedia.com/terms/o/organizational-structure
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and organizational structure is an important theme. The two can be difficult to clearly distinguish from one another‚ and even more so to clearly define within an institution. Organizational structure works within an organizational culture‚ but it is not completely separate. The two are very much intertwined. Organizational culture is more of a larger picture‚ a more general term that refers to a large umbrella of smaller topics and issues within an organization. The structure refers to the infrastructure
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Design and Structure (Advantages and Disadvantages) Each person assumes a role within the organization‚ and the organizational structure determines the reporting relationship between the individuals. The organization’s strategy determines the organizational structure that will work best for a business at a particular point in time. For example‚ a small business that hires only experienced personnel‚ who require limited supervision‚ will likely adopt a different organizational structure than will
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CAPITAL STRUCTURE DETERMINANTS THE CASE OF THE KENYAN BANKING INDUSTRY TABLE OF CONTENTS 1. INTRODUCTION Capital structure refers to the mix of debt and equity which a firm uses to finance its operations. Many theories have been formulated with regard to whether there exists an optimal capital structure mix and the role the various determinants of capital structure play in deciding the mix. The Modern theory of capital structure began with Modigliani and Miller in 1958 (Harris
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corporate capital structure Advanced Corporate Finance 4.1 5 + 6 September 2013 Corporate finance: (1) managing the balance sheet Cash + Liquid assets Accounts receivable Inventory Short t Sh t term liabilities li biliti - short term debt - accounts payable Long term liabilities LT assets - fixed - non-fixed - financial Equity 1 8/30/2013 Corporate Finance at different levels + (2) managing the cash flow needs • Long term finance (LT investments‚ capital structure) investments
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u can maintain full control over the organizational structure of your business and you can also exert a strong influence over the company culture. Business owners need to understand the difference between the two because these aspects of your business can have a major influence on the firm’s success or failure. Basics The organizational culture of a business reflects the mentality‚ work ethic and values of the company’s owners and employees. Some firms are regarded as having a cut-throat
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Capital Structure Capital Structure‚ Interest Rates and Credit Ratings Prepared by Ece SARAÇOĞLU BILGI‚ MSc in International Finance INF 503 - Financial Economics and Interest Rates December 2012 TABLE OF CONTENTS I. II. III. a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) q) IV. V. Why Capital Structure Matters To Investments How Debt and Equity Financing Differ Choosing Between Debt and Equity Financing Process Ownership rights Rights over profit Ease of doing business Repayment Cost to company
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declining level of industry demand and price‚ along with rising fuel prices and an economic recession. These pressures now force Du Pont to source its financing through debt‚ foregoing its risk averse capital structure policy in the past. It now aims to determine the most feasible capital structure that will enable it to finance capital expenditures vital to its competitive advantage while maintaing its financial flexibility. Du Pont now faces two alternatives: 1) Reduce the debt/total capitalization
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Managerial Finance – Problem Review Set – Capital Structure and Leverage 1) If a firm utilizes debt financing‚ an X% decline in earnings before interest and taxes (EBIT) will result in a decline in earnings per share that is larger than X. a. True b. False 2) Firm A has a higher degree of business risk than Firm B. Firm A can offset this by using less financial leverage. Therefore‚ the variability of both firms ’ expected EBITs could
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