Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311292 
Year of Publication: 
2022
Citation: 
[Journal:] Review of Quantitative Finance and Accounting [ISSN:] 1573-7179 [Volume:] 59 [Issue:] 4 [Publisher:] Springer US [Place:] New York, NY [Year:] 2022 [Pages:] 1559-1575
Publisher: 
Springer US, New York, NY
Abstract: 
The insights of Modigliani and Miller (Am Econ Rev 53:433–443, 1963) and Miles and Ezzell (15:719–730, https://doi.org/10.2307/2330405 , 1980) on the cost of capital of firms rank among the most important results in financial theory. The underlying assumptions regarding the financial policy, however, can hardly be reconciled with empirical findings. We investigate the implications of an alternative approach that is characterized by a fixed payout ratio. By introducing additional assumptions about investment opportunities, we find relationships between the cost of equity of levered and unlevered firms. The results contribute to explaining empirical findings and open the possibility to base valuation techniques on realistic and yet practicable assumptions.
Subjects: 
Cost of capital
Dividend policy
Payout ratio
Financing policy
Capital structure
JEL: 
G11
G32
G35
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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