Methodology of identification optimal capital structure - Магистерская работа

INTRODUCTION Background and actuality of the study. Optimal capital structure - is the capital structure that is chosen in a way, in which the company maximizes its overall value, since the maximizing value for the stakeholders can be called the main goal for every company. But in the same time optimal capital structure also must minimize the overall cost of capital for the company. There are a huge variety of approaches to identification the optimal capital structure. However, most of them have certain limitations and there is no common agreement in the scientific and business society, what model should be generally used. This explains the actuality of the research, since there are plenty of works published every year concerned this topic, which indicates the relevance and importance of the topic for the business and scientific societies, but there is still no commonly accepted model. Further literature review gives an evidence of the primarily theoretical character of the current general models and approaches of optimal debt structure identification. In spite of plurality and variety of this type of models, most of them have a lot of assumptions that are hardly suitable for use in the cases of real companies. Alternatively, plenty of practically oriented works in the volume of interest are devoted to examination of specific situations or markets that limits their potential for more common use. debt risk capital The models of identifying the optimal capital structure can be divided to the two big groups. The first one, are the models based on the Modigliani-Miller’s theory, and they can be called classical models. However, despite the fact that classical optimal structure models are widely used and discussed in academic papers, they often require unrealistic assumptions that make them not practically valuable. Moreover, the models based on Modigliani-Miller’s theory do not fully and accurately describe the relationship between required return on equity capital and risk of default, because in the situation of company’s default even if shareholders require incredibly high return, they will not get it eventually. However, this thesis is aimed at building an applicable model that may be analyzed and leads to the certain practical implications. That is why this paper is focused on the other type of optimal capital structure models defining equity as an option. Those types of models predicting the best capital structure using Black-Scholes-Merton differential equation. This type of models seems to have more realistic approach. Nevertheless, these models are really complicate and hard to modify, because mostly pure mathematics approach is used in them. So, there is not really wide range of the works, that implement this models on practice and analyze the gained results. In the following work, one of the models with option-like approach was chosen as a basis model for the further modification and implementation. This also explains actuality and relevance of the study, due to the fact that the application of the option-like models to the real cases is not so well learned as classical models. As the base model was chosen the model presented by Leland in 1994, due to the interesting approach to the debt values, and the fact that from all option-like models it has the best balance of possibility to be modified, and realistic approach. Managerial implications of the model seem to be very broad. Interest of the managers of the companies to the research is often due to possibility of optimal debt structure determination for their companies. Moreover, this work should be relevant for different kinds of investors by virtue of opportunity to predict the kind of debt of the companies they wish to invest, understand the amount of risk that company holds and it’s perspectives to grow in terms of efficient using of financial leverage. As supplementary to the aforementioned applications, kind of model developed may be a useful tool for banks and other similar organizations in the perspective of either clients’ risk identification or targeting their services by offering special kinds of debts to companies. The objectives and research methodology. The research goal can be stated as developing the optimal debt structure identification model. Practical focus of the research goal provides an advantage to this paper as against existing studies in examined field of expertise. Thereby, the research goal of this paper can be attributed to the aspiration of developing the universally applicable model with the capability of implementation in the real cases, which might be suitable for the wide range of real companies. The subject of the research is the company’s capital structure, which shows the balance between only long-term sources of funding, i.e. balance between debt and equity. Whereas the object of the research is the “optimal” capital structure, which can be described as chosen capital structure from all possible ones, which create