The optimal debt size under instability of financial markets


The present paper discusses the issue of the optimum capital structure under the conditions of the financial markets' ability to influence the borrower's bankruptcy probability. A model is built, in which a dual equilibria is created between the expected and the actual probability of bankruptcy. It is shown that destabilization of the situation in the financial markets leads to unexpected bankruptcy of an enterprise. To minimize this risk, the share of debt (D/V) should be reduced. The investigation allows for better understanding the causes of financial instability.

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@article{Ichkitidze2016TheOD, title={The optimal debt size under instability of financial markets}, author={Y. R. Ichkitidze and A. V. Zvontsov}, journal={2016 XIX IEEE International Conference on Soft Computing and Measurements (SCM)}, year={2016}, pages={525-528} }