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A Pedagogical Framework for Capital Structure: Incorporating Non-tax Advantages of Leverage

Published in
Volume: 12
   
Issue: 1
Abstract

This paper is a pedagogical tool suitable for advanced master-level courses or introductory PhD-level courses. College textbooks present a framework of capital structure that incorporates tax-driven theories but often excludes the non-tax advantages of debt. Some textbooks discuss the non-tax-driven advantages of debt but they are never reflected back into the original framework– a void that this paper attempts to fill. I present a comprehensive framework that illustrates the fact that leveraged firms gain additional value beyond tax-deductibility.

About the journal
JournalJOURNAL OF ECONOMICS AND FINANCE EDUCATION
Open AccessNo