A Revisit to the Dynamic Capital Structure Model by Considering the Optimal Bankruptcy Decision

• Main Authors: Chih-hsing Hung, 洪志興
• Other Authors: David So-De Shyu
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/v935u8

博士 === 國立中山大學 === 財務管理學系研究所 === 97 === Based on Leland (1994), the paper tries to examine the changes in probability of bankruptcy when direct and indirect costs of bankruptcy are considered. Besides, the paper tries to study the changes in probability of bankruptcy when agents have different goals, and explore the changes in bankruptcy costs and agency costs. The paper finds that, by taking into account of indirect cost of bankruptcy, the probability of bankruptcy tends to increase when agents try to maximize the value of shareholders, but tends to decrease when agents try to maximize the value of the firm. The probability of bankruptcy also varies by the changes of the parameters in different goals of agency models. Three major findings in the paper are: (1) when agents try to maximize the value of firm, the optimal probability of bankruptcy is close to zero; (2) marginal risk premium incurred by additional debts have to be considered in maximizing the value of firm; (3) the financing decision made by agents are affected by indirect costs of bankruptcy as they will increase the optimal probability of bankruptcy and marginal risk premium of debt in comparison with the case of direct costs being considered only.