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| Author: | Ghosh, D. K. Sherman, R. G. |
| Title: | Leverage, resource allocation and growth. |
| Journal: | Journal of Business Finance and Accounting
1993 : JUN, VOL. 20:4, p. 575-582 |
| Index terms: | GEARING RESOURCE ALLOCATION GROWTH FINANCIAL MODELS |
| Language: | eng |
| Abstract: | The effects of resource allocation on firms comprising the competitive economy are examined within the structure of a simple general equilibrium model. The study shows that capital structure of a firm is independent of its value. The structure of present analysis highlights how costs of capital assets change, what affects the prices of the firms, and how these changes are reflected in the operations of the firms in an overall economic set up. The paper then establishes that if debt is increased, and the (relatively) levered firm expands, its stock price goes up and the (relatively) less levered firm shrinks and moves in the opposite direction in all respects. |
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