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It seems clear that more debt leads to more risk, which is bad, but more debt also leads to higher expected returns, which is good. However, finding the optimal capital balance seems quite nebulous. Moreover, the textbook indicates that capital structures vary widely across firms, even among firms within the same industry. This makes me wonder: If there really is an optimal capital structure, wouldn't firms migrate toward it, with the result that firms ' capital structures would be more similar than they are within any given industry?

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Financial Management, Finance

Category:- Financial Management
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