Transaction costs have no effect on capital structure

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Reference no: EM13948102

Which of the following statements is false?

The most important insight regarding capital structure goes back to Modigliani and Miller: With perfect capital markets, a firm's security choice alters the risk of the firm’s equity, but it does not change its value or the amount it can raise from outside investors.

When agency costs are significant, short-term debt may be the most attractive form of external financing.

Transaction costs have no effect on capital structure.

Of all the different possible imperfections that drive capital structure, the most clear-cut, and possibly the most significant, is taxes.

Reference no: EM13948102

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