Capital structure

Does the capital structure of a firm really matter? If so, how and why does it matter? Practitioners and scholars of corporate finance have debated these questions for several years and have found it difficult to come up with definitive answers. The classical work of Modigliani and Miller (1958) provided the impetus for what is now, orthodox corporate finance theory on the optimal capital structure of firms. They postulated that, in a perfect or frictionless capital market, the choice between debt

finance those investments: with equity, debt or a combination of both (Myers, 2001). The study of capital structure tries to clarify this variety of securities and financing opportunities. In accounting terms, this decision is situated on the right-hand side of the balance sheet (Myers, 2001). In his Capital Structure Puzzle article, Myers (1984) poses the question “How do firms choose their capital structure?”. But even today, there is no right solution to this question. In the literature, there are

Theory of Capital Structure - A Review Stein Frydenberg£ April 29, 2004 ABSTRACT This paper is a review of the central theoretical literature. The most important arguments for what could determine capital structure is the pecking order theory and the static trade off theory. These two theories are reviewed, but neither of them provides a complete description of the situation and why some firms prefer equity and others debt under different circumstances. The paper is ended by a summary where the

contains a critical analysis of the capital structure strategy employed by Leighton Holdings Ltd during the Global Financial Crisis (GFC) and also an assessment of optimal capital structure Leighton should use to fund future investments. Examination of the changes of the capital structure of the company over pre-GFC and post-GFC period (2004-2010) reveals a range of considerations were deliberated in the financing decision; these include not only the capital market conditions but also the size

Capital structure management is a major area of concern for financial economists. For the previous century various theories regarding the identification and definition of various capital structure related problems were presented before the world. Background of the study In 1958, Modigliani and Miller’s “irrelevance theory of capital structure” pioneered the modern philosophy against the capital structure management of an organization. This theory stated that the value of a firm is independent of

Impacts of Profitability and Financial Leverage on Firm’s Capital Structure By [Your Name] [Instructor’s Name] [Institution’s Name] [Date] Declaration While conducting the proposed research work, I, being a hard-working, innovative and conscientious researcher, come up with the factual severity of consequences allied with an act of plagiarising content from others’ work. Moreover, I do comprehend the rules and regulations my university encompasses against submitting a plagiarised document

Capital Structure Theories Capital Structure Capital Structure is the proportion of debt, preference and equity capitals in the total financing of the firm’s assets. The main objective of financial management is to maximize the value of the equity shares of the firm. Given this objective, the firm has to choose that financing mix/capital structure that results in maximizing the wealth of the equity shareholders. Such a capital structure is called as the optimum capital structure. At the optimum

SUMMARY/ABSTRACT The Part-I of this paper analyzes the Treasury Manager and his various approaches towards the Capital Structure, by showing arguments for and against each theory. We discuss about four types of approaches that may be taken by the treasury manager while considering the Capital Structure of a Company. We have discussed Rolls Royce PLC’s capital structure strategy and analyzed the capital structure of the company over the past 10 years using an empirical case/research. The Part-II of this paper

The theory of the capital structure is an important reference theory in enterprise’s financing policy. Whether or not an optimal capital structure exists is one of the most important and complex issues in corporate finance. How an organization is financed is of paramount importance to both the managers of firms and providers of funds. This is because a wrong mix of finance is employed the performance and survival of the business enterprise may be seriously affected. Though the literature teens with

Capital Structure Stewart C. Myers The Journal of Economic Perspectives, Vol. 15, No. 2. (Spring, 2001), pp. 81-102. Stable URL: http://links.jstor.org/sici?sici=0895-3309%28200121%2915%3A2%3C81%3ACS%3E2.0.CO%3B2-D The Journal of Economic Perspectives is currently published by American Economic Association. Your use of the JSTOR archive indicates your acceptance of JSTOR 's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.html. JSTOR 's Terms and Conditions of Use