26 15. Control
The impact of debt on the stock versus the position of management control may affect the capital structure. If the current management has control over the
voting but are in a position where they cannot buy stocks again, management might opt for a debt-financing of new funding. On the other hand, management
may decide to use the equity if the companys financial situation is so weak that the use of debt may pose a risk of default.
c. The Modigliani-Miller Model
According to Priscilia 2014:14 Modigliani and Miller found in a state of perfect markets, the use of debt is irrelevant to the value of the company, but with
the tax payable will be relevant. However, the study Professor Franco Modigliani and Merton Miller Professor is based on a number of unrealistic assumptions,
among others: 1 No brokerage fees brokerage.
2 No taxes. 3 There is no bankruptcy costs.
4 Investors can borrow at a rate equal to the company. 5 All investors have the same information as the management
company of the investment opportunities in the future. 6 EBIT is not affected by the use of debt.
Professor Modigliani and Miller prove that because the interest on the debt deducted in the calculation of the tax, then the value of firms increased in line
with the large amount of debt and its value will reach the maximum point when
27 entirely financed with debt. Results of the study Professor Modigliani and Miller
irrelevant also depends on the assumption that there are no bankruptcy costs. However, in practice, the cost of bankruptcy can be very expensive.
Bankrupt company has legal and accounting costs are very high, and difficult to retain customers, suppliers and employees. According to Brigham 2014: 71, a
bankruptcy-related problems tend to arise when companies use more debt in their capital structure.
If the cost of bankruptcy increasingly large, profit levels required by shareholders is also higher. Debt capital costs will also be higher because the
lender will charge a higher interest rate to compensate for the increase in the risk of bankruptcy. Therefore, the company will continue to use debt if the benefits
payable tax savings from debt is still greater than the cost of bankruptcy. If the cost of bankruptcy is greater than the tax savings from debt, the company will
reduce its debt level. The level of debt that is optimal, thus the optimal capital, occurred when the additional tax savings equal to the additional cost of
bankruptcy.
d. Pecking Order Theory
