Capital Structure: Determination, Evaluation, and Accounting

Capital Structure: Determination, Evaluation, and Accounting

Capital Structure: Determination, Evaluation, and Accounting

Capital Structure: Determination, Evaluation, and Accounting

Synopsis

The mix of debt and equity called capital structure, representing major claims against a corporation's assets, has been the subject of a long debate focusing on its determination, evaluation, and accounting. Riahi-Belkaoui uses both theoretical and contingency approaches to examine the question of whether capital structure really can be determined. Using a bond rating model he looks at the evaluation of capital structure and the resolution of issues pertaining to equity and liabilities and their contribution to the quality of capital structure reports. The book will be of special value to corporate financial officers and to graduate students and their teachers in accounting and finance.

Excerpt

Capital structure represents the major claim to a corporation's assets. It includes different types of both equities and liabilities. This mix of debt and equity, also known as capital structure, has long been the subject of debate concerning its determination, evaluation, and accounting. Its determination is based on the assumption that an optimal capital structure can be determined. The book presents first the popular theories underlying the potential optimum capital structure-- the most popular being based on agency costs, asymmetric information, product/ input market interactions, and corporate control considerations (Chapter 1). The same problem is then presented under either a contingency of diversification (Chapter 2) or a contingency of multinationality and investment opportunity set (Chapter 3).

The evaluation of capital structure rests on the ratings of its bonds. Therefore, the book presents a model that can be used for the prediction of industrial bond ratings (Chapter 4).

Finally, the accounting issues of capital structure involve both accounting for equity (Chapter 5) and accounting for long-term liabilities (Chapter 6).

The book should be of interest to a variety of groups, including financial officers, researchers interested in corporate finance, and graduate and undergraduate students in accounting and finance.

Many people helped in the development of this book. Eric Valentine of Quorum Books is a true professional and has my deepest gratitude. Terry Park brought the book through the production process. A special note of appreciation is extended to my teaching and research assistants Belia Ortega and Dimitra K. Alvertos for their cheerful and intelligent assistance. Finally to Hedi and Janice thanks for making everything worthwhile.

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