Restoring distorted capital structures Milan,
February 28th, 2014
The Capital Structure
Capital Structure refers to the way a company finances its assets through some combination of debt and equity
The capital structure of a company is the composition, the structure of its liabilities.
The great contribution of the Trade-Off theory of Modigliani-Miller and their followers is that these models identify the specific benefits and costs of using debt (i.e. the tax effects and the costs of financial distress).
A company will choose how much debt and how much equity should finance its investments by balancing the relevant costs and benefits.