A New Capital Structure Theory: The Four-Factor Model

32 Pages Posted: 20 Apr 2020 Last revised: 4 Jan 2021

See all articles by Anton Miglo

Anton Miglo

Birmingham City University

Date Written: January 3, 2021


This article presents a new capital structure model based on four factors well documented in literature: asymmetric information, taxes, bankruptcy costs and decision-makers' overconfidence. The model can simultaneously explain several facts about capital structure including those that remain puzzling from existing theories point of view eg. negative correlation between debt and profitability; why firms issue equity etc. Unlike many advanced research on capital structure, a closed-form solution is obtained for most results.

Keywords: capital structure, asymmetric information, overconfidence, debt tax shield, bankruptcy costs

JEL Classification: D82, D89, D90, G32, H21, H32, L26, L29

Suggested Citation

Miglo, Anton, A New Capital Structure Theory: The Four-Factor Model (January 3, 2021). Available at SSRN: https://ssrn.com/abstract=3562254 or http://dx.doi.org/10.2139/ssrn.3562254

Anton Miglo (Contact Author)

Birmingham City University ( email )

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

HOME PAGE: http://https://www.bcu.ac.uk/business-school/about-us/our-staff/anton-miglo

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