Optimal Structure



Optimal Structure

Introduction

Financial theorists interest concerning how financial structure influences investment policy for companies has been highlighted from many years. According to Myers, firms having an outstanding risky debt, the opportunity for equity holders to under-invest their future growth option increases. This essay will answer why is it optimal for small firms to avoid public debt markets? And why do firms shift from bank debt into a mixture of bond market and bank debt over their life-cycle?

Discussion

Small Firms to Avoid Public Debt Markets

According to Dirk Hackbarth, firms that are weak are consider as small firms and strong firms are those ...