New Meaningful Effects in Modern Capital Structure Theory

Brusov, Peter; Filatova, Tatiana; Orekhova, Natali; Kulik, V.L.; Weil, Irwin A

doi:10.6000/1929-7092.2018.07.08

Cited by 65 publications

(6 citation statements)

References 9 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, the bankruptcy of trade-off theory has been proven by Brusov et al in 2013 [14] within the Brusov-Filatova-Orekhova (BFO) theory [15][16][17][18][19][20][21]. They have shown that the suggestion of risky debt financing (and growing credit rate near the bankruptcy) surprisingly does not lead to growing of weighted average cost of capital (WACC), with leverage level: WACC still decreases with leverage level.…”

Section: Introduction 1literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit

Brusov

Filatova

2021

Mathematics

Self Cite

View full text Add to dashboard Cite

The main purpose of the current study is the generalization and further development of the Modigliani–Miller theory taking into account one of the conditions of the real functioning of companies for the case of paying income tax with an arbitrary frequency (monthly, quarterly, semi-annual or annual payments). While a return is not required more than once a year, businesses may be responsible for filing estimated taxes based on profits earned. This requirement is dependent on showing a profit. For example, sole proprietors must file estimated taxes on profits quarterly, on the 15th day of April, June, September and January. In Russia, tax on profit payments could be made annually, quarterly, or monthly. We suppose, that more frequent payment of income tax impacts on all main financial indicators of the company and leads to some important consequences. We use analytical and numerical methods: we derive all main formulas of the modified Modigliani–Miller theory theoretically and then use them to obtain all main financial indicators of company and their dependences on different parameters by MS Excel. We show that: (1) all Modigliani–Miller theorems, statements and formulas change; (2) all main financial indicators, such as the weighted average cost of capital (WACC), company value, V, and equity cost, ke, depend on the frequency of tax on profit payments; (3) in the case of income tax payments more than once per year (at p ≠ 1), as takes place in practice, the WACC, company value, V and equity cost, and ke start depend on debt cost, kd, while in ordinary (classical) Modigliani–Miller theory all these values do not depend on kd; (4) obtained results allow a company to choose the number of payments of tax on profit per year (of course, within actual tax legislation): more frequent payments of income tax are beneficial for both parties, for the company and for the tax regulator.

show abstract

Section: Introduction 1literature Reviewmentioning

confidence: 99%

“…(in the presence of corporative taxes). As was shown, a lot of qualitatively new effects in corporate finance, obtained within Brusov-Filatova-Orekhova theory [14][15][16][17][18][19][20][21], are absent in Modigliani-Miller theory [1][2][3][4]. The Brusov-Filatova-Orekhova formula for WACC has the following form:…”

Section: Introduction 1literature Reviewmentioning

confidence: 99%

The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit

Brusov

Filatova

2021

Mathematics

Self Cite

View full text Add to dashboard Cite

show abstract

“…But the methodologies of leading rating agencies, such as "The Big Three credit rating agencies" (Standard & Poor's (S&P), Moody's, and Fitch Group) as well as Russian rating agency ACRA and all other ones have a lot of shortcomings. A number of works by authors are devoted to eliminating some of these shortcomings (Brusov et al, 2018(Brusov et al, , 2018a(Brusov et al, , 2018b(Brusov et al, , 2018c(Brusov et al, , 2018d.…”

Section: Introductionmentioning

confidence: 99%

Ratings of the Investment Projects of Arbitrary Durations: New Methodology

Brusov¹,

Filatova²,

Orekhova³

2020

Ratings

Self Cite

View full text Add to dashboard Cite

Section: Introductionmentioning

confidence: 99%

“…Besides the fact, that RA represent some "black boxes", the information about the methods of work of which is almost completely absent, there are some serious methodological and systematic errors in their activity. These errors and ways to their overcome have been discussed in a number of authors papers (Brusov et al, 2018(Brusov et al, , 2018a, as well as in monograph (Brusov et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

Ratings of The Investment Projects of Arbitrary Durations: New Methodology

Brusov¹,

Filatova²,

Orekhova³

et al. 2019

J. Rev. Global Econ.

View full text Add to dashboard Cite

In this paper we develop for the first time a new approach to ratings of the investment projects of arbitrary durations, which could be applied to investments of any area of economy and in particular to energy projects.The ratings of such energy projects, as "Turkish stream", "Nord stream-2", energy projects relating to clean, renewable and sustainable energy, as well as relating to pricing carbon emissions (McAleer et al., 2018a,b,c;2019) could be done using developed here new rating methodologies. In our previous papers the new approach to the ratings of the long-term investment projects has been developed (Filatova et al., 2018). The important features of that consideration are as following: 1) The incorporation of rating parameters (financial "ratios"), used in project rating and playing a major role in it, into modern long-term investment models, 2) The adequate use of discounting of financial flows virtually not used in existing project rating methodologies. Here, for the first time, we incorporate the rating parameters (financial "ratios"), used in project rating, into modern investment models, describing the investment projects of arbitrary durations. This was much more difficult task then in case of the long-term investment projects, considered by us in previous papers. We work within investment models, created by authors. One of them describes the effectiveness of investment project from perspective of equity capital owners, while other model describes the effectiveness of investment project from perspective of equity capital and debt capital owners. New approach allows use the powerful instruments of modern theory of capital cost and capital structure (BFO theory) (Brusov et al., 2015(Brusov et al., , 2018 and modern investment models, created by the authors and well tested in the real economy to evaluate investment project performance, including energy projects.In our calculations we use Excel technique in two aspects: 1) we calculate WACC at different values of equity costs k0, different values of debt costs kd and different values of leverage level L=D/S, using the famous BFO formula; 2) we calculate the dependences of NPV on coverage ratios as well as leverage ratios at different values of equity costs k0, different values of debt costs kd and different values of leverage level L.

show abstract

New Meaningful Effects in Modern Capital Structure Theory

Cited by 65 publications

References 9 publications

The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit

The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit

Ratings of the Investment Projects of Arbitrary Durations: New Methodology

Ratings of The Investment Projects of Arbitrary Durations: New Methodology

Contact Info

Product

Resources

About