This paper focuses on “capital structure”, which is the ratio of debt and equity of a firm, and argues that management-derived motivations for the “formal” improvement of reporting indicators are assumed to be the factors that manipulate the capital structure. We also argue that the use of “financial instruments with both debt and equity characteristics” can be used to adjust the capital structure as desired by management. The specific issues to be discussed in this paper are as follows. First, in light of the research on capital structure and the recent emphasis on shareholder value, we touch on the possibility that managers’ economic motivation to prioritize the personal utility maximization that belongs to them may act on the decision of capital structure. We then argue that a compositive capital policy with “both debt and equity instruments” can “formally” make it possible for managers to achieve their desired capital structure. Specifically, we propose Recap CBs as the way to formally increase the debt to equity ratio of a firm and preferred stock debt equity swaps as the way to formally decrease it. Finally, we present the future prospects for this type of capital structure adjustment.
