Practical Applications of Capital Structure Models

A special issue of International Journal of Financial Studies (ISSN 2227-7072).

Deadline for manuscript submissions: closed (1 January 2021) | Viewed by 3541

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Department of Finance, School of Business, Washburn University, Topeka, KS 66621, USA
Interests: corporate finance; capital structure; equity offerings; hedge funds; financial education; personal finance; retirement planning
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Special Issue Information

Dear Colleagues,

Corporate finance often fails to address real-world problems such as federal tax policy or inequity in the taxation of different ownership forms. To elaborate, capital structure theory fails to fully address how maximizing firm value can also simultaneously maximize federal tax revenue or how inequity in taxation affects firm valuation. This Special Issue seeks two general types of research. First, we seek to solicit valuation models built on capital structure theory that compute a maximum firm value for the two major ownership types of pass-through entities (where all taxes are paid at the personal level) and C corporations (where taxes are paid at both the corporate level and personal level). Second, this Special Issue aims to attract articles that apply extant or new capital structure models to financial problems. Besides applications of capital structure theory to maximize federal tax policy and firm value related to inequity in taxing ownership forms, researchers are free to apply a capital structure model to other practical problems of interest.

Prof. Dr. Rob Hull
Guest Editor

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Published Papers (1 paper)

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Research

43 pages, 2293 KiB  
Article
Nonprofits and Pass-Throughs: Performance Comparison
by Robert Hull and Shane Van Dalsem
Int. J. Financial Stud. 2021, 9(1), 13; https://doi.org/10.3390/ijfs9010013 - 27 Feb 2021
Cited by 2 | Viewed by 2925
Abstract
This paper’s purpose is to compare nonprofits with pass-throughs in terms of valuation, leverage, and growth. To achieve this purpose, we use the Capital Structure Model. This model determines maximum firm valuation through incorporating real data (tax rates, credit spreads, and historical growth [...] Read more.
This paper’s purpose is to compare nonprofits with pass-throughs in terms of valuation, leverage, and growth. To achieve this purpose, we use the Capital Structure Model. This model determines maximum firm valuation through incorporating real data (tax rates, credit spreads, and historical growth rates). Since this is the first study to offer our particular set results on valuation, leverage and growth, our findings are value-additive in terms of the comparative research on nonprofits and pass-throughs. The new and scientific value of our findings are further established by robust tests that modify values for key variables. Major findings include the following. Nonprofits have over a fifty percent valuation advantage over pass-throughs and achieve a four times greater increase in dollar value when going from nongrowth to growth. The latter accomplishments are attained with a smaller before-tax plowback ratio and less retained earnings. Such achievements occur because nonprofits are not taxed on earnings retained for growth. While nonprofits have somewhat greater optimal leverage ratios than pass-throughs, they gain a bit less in dollars added from debt unless growth rates increase as projected when tax rates are lowered. Nonprofits gain less percentage-wise from debt because their unlevered firm value is greater than pass-throughs. Full article
(This article belongs to the Special Issue Practical Applications of Capital Structure Models)
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