Lecture 3- Gearing (part 2)

Financial distress- When firm experiences in meeting its

Bankruptcy- Economically a firm goes when of its to its therefore, has no value

Direct bankruptcy costs- that are with , such as and expenses

Indirect bankruptcy costs- of avoiding incurred by firm

Financial distress costs- & costs associated with going or experiencing

One type of indirect cost of financial distress is to . Business not able to their with condition as before. Suppliers & customers to do business

Another type of indirect cost of financial distress is ( of between & )

One type of agency cost is to . Company on when experiencing financial distress & when perceive these to benefit rather than them

Another type of agency cost is to take

Third type of agency cost is the . Managers & shareholders decide to or other distributions in times of , leaving in firm for

Covenant- between & to protect

Static theory of capital structure- Firm up to point where from an extra pound or euro in is to that comes from of financial distress

Pecking order theory- Firm must first use to an . If this isn't enough they should because it's cheaper form of & creates . Finally, as last resort

In market timing theory managers when its is high relative to & when of equity is low relative to its

Liquidation- of firm as a

Reorganisation- of firm to attempt to as a