# American Institute of Mathematical Sciences

• Previous Article
Joint pricing and ordering policies for deteriorating item with retail price-dependent demand in response to announced supply price increase
• JIMO Home
• This Issue
• Next Article
Risk-minimizing portfolio selection for insurance payment processes under a Markov-modulated model
April  2013, 9(2): 431-436. doi: 10.3934/jimo.2013.9.431

## An optimal financing model: Implications for existence of optimal capital structure

 1 Mathematics Department, University of Melbourne, Melbourne, Australia 2 CSES, Victoria University, Melbourne, Australia

Received  May 2011 Revised  January 2013 Published  February 2013

Modigliani and Miller's argument of the irrelevance of the debt-equity ratio to the value of the firm implies that capital structure has no impact on the value of the firm (irrelevance result). In the existing work, the proof or disproof of the Modigliani and Miller theorem is based critically on some specific assumptions, not general enough to be always valid in practical finance, and including especially a constant interest rate for borrowing. This paper develops another optimal financing model, whose assumptions differ from those in previous models for the Modigliani and Miller theorem. If the borrowing rate increases with the amount borrowed, there is a unique optimal ratio of debt to equity, determining the optimal capital structure. Therefore the debt-equity ratio does affect the value of the firm, and hence the need for good corporate financial management to maximize the value of the firm, by choosing the optimal debt. Some important issues of sensitivity are also analysed. The proposed model should apply to more real situations, and therefore makes an original contribution to finance.
Citation: B. D. Craven, Sardar M. N. Islam. An optimal financing model: Implications for existence of optimal capital structure. Journal of Industrial & Management Optimization, 2013, 9 (2) : 431-436. doi: 10.3934/jimo.2013.9.431
##### References:

show all references

##### References:
 [1] Peng Luo. Comparison theorem for diagonally quadratic BSDEs. Discrete & Continuous Dynamical Systems - A, 2020  doi: 10.3934/dcds.2020374 [2] Xiyou Cheng, Zhitao Zhang. Structure of positive solutions to a class of Schrödinger systems. Discrete & Continuous Dynamical Systems - S, 2020  doi: 10.3934/dcdss.2020461 [3] Yu Zhou, Xinfeng Dong, Yongzhuang Wei, Fengrong Zhang. A note on the Signal-to-noise ratio of $(n, m)$-functions. Advances in Mathematics of Communications, 2020  doi: 10.3934/amc.2020117 [4] Xin-Guang Yang, Lu Li, Xingjie Yan, Ling Ding. The structure and stability of pullback attractors for 3D Brinkman-Forchheimer equation with delay. Electronic Research Archive, 2020, 28 (4) : 1395-1418. doi: 10.3934/era.2020074 [5] Antoine Benoit. Weak well-posedness of hyperbolic boundary value problems in a strip: when instabilities do not reflect the geometry. Communications on Pure & Applied Analysis, 2020, 19 (12) : 5475-5486. doi: 10.3934/cpaa.2020248 [6] Mehdi Badsi. Collisional sheath solutions of a bi-species Vlasov-Poisson-Boltzmann boundary value problem. Kinetic & Related Models, , () : -. doi: 10.3934/krm.2020052 [7] Mokhtar Bouloudene, Manar A. Alqudah, Fahd Jarad, Yassine Adjabi, Thabet Abdeljawad. Nonlinear singular $p$ -Laplacian boundary value problems in the frame of conformable derivative. Discrete & Continuous Dynamical Systems - S, 2020  doi: 10.3934/dcdss.2020442

2019 Impact Factor: 1.366