The Capital Structure Puzzle.¶
MYERS, S. C. (1984). The Capital Structure Puzzle. Journal of Finance, 39(3), 575-592.
Cited by¶
2 citations across 2 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Frictionless Benchmark Reasoning
- The catalog of named deviations then constitutes the entire real-world theory: the tax shield of debt, the costs of financial distress, agency costs of debt and equity, and signalling under asymmetric information — each a separately named friction with its own quantitative apparatus.
This sourceSurveys the named frictions — tax shields, distress costs, agency costs, asymmetric-information signalling — that constitute capital-structure theory as the deviation catalogue from Modigliani–Miller.
Supported in partVerified against the work's full text
Myers describes tax shields, distress and agency costs and asymmetric information as the frictions in capital-structure theory, but calls the theory a puzzle with only qualitative support.
“The firm is portrayed as balancing the value of interest tax shields against various costs of bankruptcy or financial embarassment.”
- The catalog of named deviations then constitutes the entire real-world theory: the tax shield of debt, the costs of financial distress, agency costs of debt and equity, and signalling under asymmetric information — each a separately named friction with its own quantitative apparatus.
- Zero-Force Null Baseline
- A treasurer observing that levering up raised the firm's value attributes the gain to the tax shield (interest deductibility, a named tax-force deviation); observing that pushing leverage further eventually destroys value attributes the loss to rising expected bankruptcy costs (a named distress-force deviation); the trade-off theory of optimal capital structure is literally the sum of these two named departures against the MM reference.
Supported in partVerified against the work's full text
Myers describes the static trade-off as balancing interest tax shields against bankruptcy/distress costs, with MM theory as the starting point; the "sum of departures" framing is not his.
“The firm is portrayed as balancing the value of interest tax shields against various costs of bankruptcy or financial embarassment.”
- A treasurer observing that levering up raised the firm's value attributes the gain to the tax shield (interest deductibility, a named tax-force deviation); observing that pushing leverage further eventually destroys value attributes the loss to rising expected bankruptcy costs (a named distress-force deviation); the trade-off theory of optimal capital structure is literally the sum of these two named departures against the MM reference.
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