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2018 | OriginalPaper | Buchkapitel

8. A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage

verfasst von : Peter Brusov, Tatiana Filatova, Natali Orekhova, Mukhadin Eskindarov

Erschienen in: Modern Corporate Finance, Investments, Taxation and Ratings

Verlag: Springer International Publishing

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Abstract

Qualitatively new effect in corporative finance has been discovered by the authors: decreasing of equity cost k _e with leverage L. This effect, which is absent in perpetuity Modigliani–Miller limit, takes place on account of finite age of the company at tax on profit rate, which exceeds some value T*.

At some ratios between debt cost and equity cost, the discovered effect takes place at tax on profit rate existing in Western countries and Russia. This provides the practical meaning of the discussed effect. Taking it into account is important for the modification of tax law and can change the dividend policy of the company.

In this chapter, the complete and detailed investigation of the discussed effect, discovered within Brusov–Filatova–Orekhova theory, has been done. It has been shown that the absence of the effect at some particular set of parameters is connected to the fact that in these cases, T* exceeds 100% (tax on profit rate is situated in “nonfinancial” region).

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Vorheriges Kapitel The Role of Taxing and Leverage in Evaluation of Capital Cost and Capitalization of the Company

Nächstes Kapitel Inflation in Brusov–Filatova–Orekhova Theory and in Its Perpetuity Limit Modigliani–Miller Theory

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Titel: A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage
verfasst von: Peter Brusov
Tatiana Filatova
Natali Orekhova
Mukhadin Eskindarov
Verlag: Springer International Publishing
Buch: Modern Corporate Finance, Investments, Taxation and Ratings
Print ISBN: 978-3-319-99685-1

Electronic ISBN: 978-3-319-99686-8

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-319-99686-8_8