Theories Of Cost Theory

1802 Words8 Pages
Theories: I have highlighted the major financial theories that influence my research. These theories supported my choice of Hypothesis and research framework. Agency Cost Theory: The dividend policy looks into agency problems between corporate insiders and outside shareholder. Agency conflicts comes up when there is an agency relationship between people this relationship is a contract under which more than one person engage another person to perform some service on their behalf which involves giving some decision-making authority to the agent. The agency conflict is a conflict of interest between corporate insiders (the agents) and outside shareholders (the principals), or in other words between managers and shareholders. There is good reason to believe that the manager will not always act in the best interest of the…show more content…
(Dr). T. Velnampy and J. AloyNiresh wrote an article with topic “The Relationship between Capital Structure & Profitability “. The article focuses on the fact that an unplanned capital structure could lead to inefficient use of the funds whereas a strategically planned capital structure maximizes the use of the fund and helps to adapt to economic changes. The authors shows the relationship between the capital structure and profitability of listed banks of Sri Lanka. Descriptive statistical tools were used to define and summarize the behavior of each variable over the period of time .The results of the descriptive analysis shows that the mean of debt/equity ratio is 825.2% which indicates that the debt of banks are 8.25 times more than the total equity which is abnormal in the market as 2 times is perceived to be the maximum ratio for other sectors if the firm is to maintain a safe position. This shows that banks in Sri Lanka depend heavily on debt rather than equity. This can also be seen from the mean value of debt to total fund ratio which is 89% which indicates that banks capital structure is made up of 89% of leverage and only 11% of
Get Access