The firm under uncertainty: capital structure and background risk

Arbeitspapier

This paper examines the interplay between the real and financial decisions of the competitive firm under output price uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk attitude of the firm and the incidence of the underlying uncertainty. We further show that the firm's optimal input mix depends on its optimal debt-equity ratio, thereby rendering the interdependence of the real and financial decisions of the firm. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences so as to ensure that the firm's optimal output is adversely affected upon the introduction of the background risk.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Dresden Discussion Paper Series in Economics ; No. 04/10

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Firm Behavior: Theory ; Criteria for Decision-Making under Risk and Uncertainty ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: Background risk ; Capital structure ; Price uncertainty ; Kapitalstruktur ; Entscheidung bei Unsicherheit ; Finanzierungstheorie ; Preis ; Risiko ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Broll, Udo ; Wong, Keith K.P.
• Ereignis: Veröffentlichung
• (wer): Technische Universität Dresden, Fakultät Wirtschaftswissenschaften
• (wo): Dresden
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/39801
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ