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Capital Structure, Precautionary Balances, and Valuation of the Firm: The Problem of Financial Risk

Published online by Cambridge University Press:  19 October 2009

P. A. Tinsley
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Extract

A useful distinction is sometimes maintained between business risk associated with uncertainty of receipts generated by a firm's assets and financial risk defined as the probability of incurring penalty costs stemming from liability claims on assets and asset yields. In fact, disagreement in recent literature on the exact role of capital structure in market valuation of business firms is easily interpreted once the risk assumptions of the literature such as perfect certainty, business risk, and financial risk have been identified.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 5 , Issue 1 , March 1970 , pp. 33 - 62
Copyright
Copyright © School of Business Administration, University of Washington 1970

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References

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