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<p>This paper presents a drawing-based pedagogical method to address some of the difficulties in teaching introductory finance. The approach uses payoff diagrams to visually deconstruct a firm’s total value into the distinct claims of debt (a senior, fixed claim) and equity (a residual claim). By starting with a simple drawing exercise, the intuitive graphical framework allows students to grasp the fundamental relationship between different types of financial claims and serves as a foundation for exploring advanced topics such as agency conflicts in risk-taking and the allocation of control rights.</p>

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Drawing debt and equity: a graphical approach to teaching capital structure

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年6月26日

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  • Joon Ho Hwang,
  • Heejin Yang,
  • Doowon Ryu

摘要

This paper presents a drawing-based pedagogical method to address some of the difficulties in teaching introductory finance. The approach uses payoff diagrams to visually deconstruct a firm’s total value into the distinct claims of debt (a senior, fixed claim) and equity (a residual claim). By starting with a simple drawing exercise, the intuitive graphical framework allows students to grasp the fundamental relationship between different types of financial claims and serves as a foundation for exploring advanced topics such as agency conflicts in risk-taking and the allocation of control rights.