Corporate Strategy: Useful Perspective for the Study of Capital Structure?

To date, extensive financial theoretical and empirical work has generated no consensus about which factors have an impact on the capital structure decision or how it affects firm performance. A framework is proposed that joins strategy literature and financial literature; this perspective allows for...

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Bibliographic Details
Published in:The Academy of Management review 1987-01, Vol.12 (1), p.67
Main Authors: Barton, Sidney L, Gordon, Paul J
Format: Article
Language:English
Subjects:
Capital structure
Debt
Equity
Rates of return
Risk
Strategic planning
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Summary:To date, extensive financial theoretical and empirical work has generated no consensus about which factors have an impact on the capital structure decision or how it affects firm performance. A framework is proposed that joins strategy literature and financial literature; this perspective allows for a more eclectic and realistic assessment of the mechanism of the leverage decision at the firm level than does the finance paradigm taken alone. Five propositions related to the capital structure decisions are offered, including that top management's risk-taking propensity and its goals for the firm will affect the firm's capital structure. The underlying premise for each of the propositions is that the specific capital structure decision is the result of managerial choice. In addition, that choice is based on the values and goals of management as complemented or constrained by relevant external threats and opportunities and internal strengths and weaknesses.
ISSN:0363-7425
1930-3807
DOI:10.2307/257994