Title: Capital Structure and Systematic Risk in the Philippine Setting
Abstract: The classic or traditional approach to thinking about capital structure is that there does exist an optimal capital structure in a world of non-perfect capital markets, where there are corporate and personal taxes, and where bankruptcy costs exist with risky debt. This paper’s preliminary empirical tests on the relationship between financial leverage and firm risk (as measured by Beta) seem to support the classic or traditional approach to thinking about capital structure, which proposes that there does exist an optimal capital structure. Tests for the relationship between Beta and Leverage reveal a significant, negative relation between leverage and unlevered Beta, indicating that higher operating risk levels should not spur further borrowings. This paper attempts to empirically test the relationship between risk, as measured by firm Beta, and financial leverage.
Publication Year: 2007
Publication Date: 2007-01-01
Language: en
Type: article
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Cited By Count: 1
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