Analysis on Dynamic Adjustment of Capital Structure under Uncertainty
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Abstract:
Under uncertainty which the enterprise asset value follows an exogenous stochastic differential equation, total value of the enterprise equals to asset value added to present value of tax sheltering about coupons, minus present value of bankruptcy costs. Present values of tax-sheltering and bankruptcy costs are contingent claims of the enterprise asset value, which depends on endogenous bankruptcy point. An expression about asset value of endogenous bankruptcy is obtained by "high contact" condition, base on which effects on the stockholders and creditors are given when capital structure is dynamically adjusted, and interest and strategy of stockholders and creditors are discussed.
