Optimal capital structure and project financing
type: Item
instance of: scholarly article
title: Optimal capital structure and project financing
zbMATH Open document ID: 0622.90014
DOI: 10.1016/0022-0531(87)90086-X
author: Salman Shah
author: Anjan V. Thakor
published in: Journal of Economic Theory
publication date: 1987-01-01T00:00:00Z
review text: We examine the financing and incorporation modes for new projects. There are two objectives. The first is to provide a theory of optimal capital structure that links risk, leverage, and value and is particularly applicable to large firms. Counter to conventional wisdom, we show riskier firms acquire more debt, pay higher interest rates, and have higher values in equilibrium. Second, we provide an economic rationale for project financing which entails organizing a new project legally distinct from the firm's other assets. We explain why project financing involves higher leverage than conventional financing and why highly risky assets are project-financed.
Mathematics Subject Classification ID: 91B60
Mathematics Subject Classification ID: 91G50
zbMATH DE Number: 4010167
zbMATH Keywords: financing
zbMATH Keywords: incorporation modes for new projects
zbMATH Keywords: optimal capital structure
MaRDI profile type: Publication
cites work: The Existence of Equilibrium in Discontinuous Economic Games, I: Theory
cites work: The Existence of Equilibrium in Discontinuous Economic Games, II: Applications
cites work: Financial Intermediation and Delegated Monitoring
cites work: Incentive Compatibility and the Bargaining Problem
cites work: Information Reliability and a Theory of Financial Intermediation
cites work: Informational Equilibrium
full work available at URL: 0022-0531(87)90086-x
OpenAlex ID: W2161364128
description: scientific article; zbMATH DE number 4010167