Three essays on capital structure
Λαμπρινουδάκης, Κωνσταντίνος Β.
Capital Structure is the mix of financial instruments used to finance real investments by corporations. There are four broad categories of financial instruments, namely common stock, preferred stock, debt and hybrid securities. Owners of common stock receive all corporate payouts after every other claimant has been paid and have the voting power to control corporate decision making. Owners of preferred stock receive payments before common stockholders, but they have no voting power. Debt holders are first in line for payment. They may not have voting power, but they have the right to force a bankruptcy proceeding and take over the company, if the company defaults on its payments. Some of the most widely used types of debt are bank loans, corporate bonds and commercial paper. Hybrid securities are combinations of different security types. For example, convertible bonds are debt securities that can be converted into equity at a specified price, at the lender's option. Capital structure is one of the five major fields that corporate finance research consists of. The main question posed by capital structure research is whether the value of a firm is affected by its capital structure. In order to answer this question, capital structure literature explores the following issues: How do firms finance their operations? Which factors influence these choices? Is it possible to increase the value of a firm just by changing the mix of securities issued? Is there an optimal debt-equity combination that maximizes the value of the firm and if so how is it determined?