CORPORATE FINANCE
Patrice Fontain
27 August 2010
Corporate Finance

Professor Fontain’s lecture referred to some papers titled “How and When Do Firms adjust their Capital Structures towards Targets?”, “Partial adjustment toward target capital structures” “Institutional Determinants of Capital Structure Adjustment Speeds” to introduce basically matters in corporate finance. The key factors are Stock and Equity, decisions (investment decision and financing decision) in which a finance-needs-induced adjustment framework to examine the dynamic process by which firms adjust their capital structures. To make it clear, he introduce some traditional theories of capital structure, such as The Modigliani–Miller, option pricing theory and capital structure, the effects of bankruptcy costs, signal hypothesis (Myers & Majluk -1974), agency costs (Jensen & Meckling-1976).

The results of those studies suggest that firms move towards the target capital structure when they face either a financial deficit or surplus. However this movement does not occur in the manner hypothesized by the traditional pecking-order theory.