The effect of leverage on shareholders’ value / Amélie RIBEIRO PINTO / 2022

Titre : The effect of leverage on shareholders’ value Type de document : Mémoire Auteurs : Amélie RIBEIRO PINTO, Auteur Année de publication : 2022 Importance : 31 p. Note générale : Pour accéder aux fichiers PDF, merci de vous identifier sur le catalogue avec cotre compte Office 365 via le bouton CONNEXION en haut de la page. Langues : Anglais (eng) Mots-clés : Management DETTE ; ACTIONNAIRE ; CAPITAL Résumé : Capital structure is the percentage of debt and equity which finances the firm’s assets. Firms’ stakeholders including shareholders and managers are constantly seeking the optimal capital structure. More specifically, they wonder what the accurate level of leverage within the firm’s capital structure is. This question is critical for many reasons. Firstly, an optimal level of leverage brings about an increase in shares’ value and consequently bolsters firms’ value. Secondly, a firm needs to have sufficient funds to invest in profitable projects to grow and generate profit, that is, to avoid under?capitalization. In addition, an accurate level of leverage will minimize the cost of capital which will in turn maximize shareholders’ value. A suitable capital structure is also a strength to keep solvency stable overtime. Indeed, a firm should be able to pay its long-term debts and to be a going concern. Finally, capital structure will also impact liquidity position as a firm must meet its short-term debts.Moreover, shareholders are important for a firm to be viable. Indeed, they provide financial resources to finance the firm’s projects and operations. As a result, it seems obvious to offer sustainable returns to shareholders. That is, why we must wonder whether leverage has a positive effect on shareholders’ value. To sum up our findings, leverage has a qualified influence on shareholders’ value. The interest tax shield is clearly effective for our sample. However, the underinvestment theory which supports a negative effect of leverage on shareholders’ value also applies. Even if leverage reduces the effective tax paid by French company, it could also drag their investments down. When we deem shareholders’ value with ROE, we find that debt conveys a positive signal and allows to solve agency problems. Nevertheless, we get the opposite results when using EPS. Similarly, The Pecking Order Theory is verified for EPS but not for ROE. Consequently, the positive effect of leverage on shareholders’ wealth applies for ROE whereas there is a negative impact using EPS. Programme : PGE-Reims Permalink : https://cataloguelibrary.neoma-bs.fr/index.php?lvl=notice_display&id=571589