Determinants Of Short Term Debt Financing

theoretical and empirical studies. It has also been discussed that whether the firm has any optimal capital structure that has been adopted by an individual firm, or whether the proportions of debt usage is completely irrelevant to the individual firm value. A firm can choose a mix of three modes of financing i.e. issuing shares, borrowing from the market and use of retained earnings. The ratio of this mix of funds purely depends on the firm and known as optimal capital structure of the firm. This

company financial condition such as how the firm dealing with product recall and recovering from the recall. Maksimovic and Titman (1991) also argued that debt financing will affect their incentive in investing high quality or enhancement product because the debt financing make company more pressure on cash flow and cutting cost for getting short term profit and in case of bankruptcy. Titman (1984) also mentioned that the relationship between firms and suppliers

Assignment No. 2 Determinants of capital structure In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm 's capital structure is then the composition or 'structure ' of its liabilities. Simply, capital structure refers to the mix of debt and equity used by a firm in financing its assets. The capital structure decision is one of the most important decisions made by financial management. The capital

and no taxation exist; equity and debt choice become irrelevant and internal and external funds can be perfectly substituted. The M-M theory (1958) argues that the value of a firm should not depend on its capital structure. The theory argued further that

are available for small to medium sized companies and explain why they sometimes face difficulties in raising finance 1. Introduction The SME (Small and medium enterprise) sector is one of the crucial important contributor to economic growth in terms of Gross Domestic Product(GDP) and job creation worldwide(IFC,2010). According to OECD(2006), SMEs had created more than sixty percent of the job opportunities for OECD countries. That situation for developing counties are even more obvious. There

Chapter 12 Determining the financing mix I. Risk * Variability associated with expected revenue or income streams. Such variability may arise due to: * Choice of business line (business risk) * Choice of an operating cost structure (operating risk) * Choice of Capital structure (financial risk) a) Business Risk * Variation in the firm’s expected earnings attributable to the industry in which the firm operates. There are four determinants of business risk:

of 5 conventional banks, in terms of their performance. Performance is determined from the angles of profitability, liquidity, and efficiency

They show that level of information asymmetry is higher for rural firms. Rural firm issue fewer seasoned equity offerings, it takes them more time to do an IPO, and they use more debt. Ivkovic and Weisbenner (2005) examine the stock investments of over 30,000 households in the U.S. between 1991 and 1996. They find that the “average household invests 31% of its portfolio in stocks located within 250 miles. If investors had held

finance when the market-to-book ratio was high and vice-versa. The intuitive motivation for this weighting scheme is that external financing events represent practical opportunities to change leverage. It therefore gives more weight to valuations that prevailed when significant external financing decisions were being made, whether those decisions ultimately went toward debt or equity. This weighted average is better than a set of lagged market-to-book ratios because it picks out, for each firm, precisely

b) Two type of investment decisions namely: * Capital Investment decisions: large sums, non routine, longer term, critical to the business like purchase of plant and machinery or factory * Working Capital Investment decisions: more routine in nature, short term but are also very critical decisions like how much and how long to invest in inventories or receivables FINANCING DECISION a) After deciding on the amount and type of assets to buy, the financial manager needs to decide on