The market compensates firms that increase risk. However, when high bankruptcy risk is reached, the market penalizes firms. We analyze the market reaction to risk to identify the point the market goes from compensating to penalizing firms. We use the Altman Z-Score to measure risk levels and study the market reaction to changes in the score. This method identifies optimal capital structure through market reaction to changes in bankruptcy risk. This method identifies short term and long term adjustments that can be executed to achieve immediate optimal capital structure and subsequently long term sustainable optimal capital structure.