Test of Capital Structure Theory and Corporate Risk Management

This research study has attempted to indirectly test the proposition that the probability of corporate failure is mainly related to the unsystematic component of the total risk. The authors conjecture confirms that managing the total cash-flow risk of the firm significantly affects both the systematic and unsystematic components of the cash flow distribution simultaneously which ultimately shows up in a change of the systematic (beta) and unsystematic components of the total equity returns of a leveraged company