Download or read book The Influence of Capital Structure on Company Value with Different Growth Opportunities written by Kevin Chen and published by . This book was released on 2002 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we will try to empirically test the influence of the debt structure on the company value given different growth opportunities with the companies incorporated in Netherlands. It is well accepted that the market value of any firm is independent of its capital structure, given the assumptions of capital markets are quot;perfectquot;. It is observed that the optimal capital structures are closely related to the growth potential of the firms and some other variables, such as: the size and the industry characteristics. Building on the argument that high-growth firms corporate value is negatively correlated with leverage, whereas for quot;low-growthquot; firms corporate value is positively correlated with leverage, we should observe that the growth opportunities may influence the optimal capital structure. The reason is that the optimal leverage may shift with the changes of growth opportunities that lead to the changes of agency costs of debt and cost of managerial discretion. In this context, we will try to empirically test 1: The correlation between Tobin's Q and leverage will be positive given the differences in growth opportunities; and 2: The correlation between Tobin's Q and leverage will be negative for high-growth firms and positive for low-growth firms. We expect that the signalling function of the debt will overweight the influence of the growth opportunities on the debt structure if hypothesis one is proved. Otherwise, the influence of the growth opportunities on the shift of the agency cost of debt and agency cost of managerial discretion will dominate the model. Finally, the influence of zero-debt capital structure is tested and discussed.