The value of a firm is therefore defined as the market value of debt plus the market value of equity ross. Descriptive, correlation and regression analysis were used to analyze the data. An overview kennedy prince modugu department of accounting faculty of management sciences university of benin nigeria abstract capital structure decision poses a lot of challenges to firms. Specifically the study sought to establish the effect of capital structure on the relationship between corporate governance and firm performance of listed companies in kenya, tanzania, uganda, rwanda and burundi.
Myers he study of capital structure attempts to explain the mix of securities and financing sources used by corporations to finance real investment. Pdf the impact of capital structure on firms performance. The traditional school, at one extreme, argues that there is an optimum capital structure at which the value of the firm is highest. While there have been studies on capital structure and corporate strategy, limited research has. It can issue either equity or debt capital or a large amount of debt capital and little. Phd thesis on capital structure pdf world currency.
Further many of the reported studies on the relationship between financial leverage and performance have been conducted in developed countries where capital markets are welldeveloped. Determinants of capital structure an empirical evidence, us. The impact of capital structure on risk and firm performance. Debt is amount borrowed by a firm to finance its business by issuing debt. The vast amount of empirical research into the extent and effects of bankruptcy costs and. Shareholders equity or equity shareholders funds or net worth is arrived at by adding up equity capital and reserves.
The debt to equity ratio is calculated by dividing the companys total debt divided by shareholders equity. To evaluate the interrelationship between capital structure and performance to determine the determinants of a capital structure 5. The relationship between capital structure and corporate. For a description of this les purpose, and instructions on its use, see below. Hence the working capital management efficiency is measured in terms of the days of working capital dwc. Developments in capital structure during the last 30 years have resulted in a number of capital structure theories. Pdf capital structure management in nepalese enterprises. It would be hard to get the amounts of the components used in operations for an operating cycle. A thesis submitted in fulfilment of the requirements for the. Results revealed that a good financial management practice is abackbone to smallscale.
Working capital of a firm is defined as the amounts invested in the current assets of the organization. There is also significant theory on the capital structure of firms and its determinants. The success of financial institutions in kenyas dynamic business environment depend on their ability to effectively determine the optimum and appropriate capital. Pdf the effect of capital structure on profitability of insurance. Determining an appropriate mix of equity and debt is one of the most strategic decisions public interest entities are confronted. This is unlike previous studies in the capital structure literature that have used static analysis. Earlier fusion of strategic and financial literature led to a series of propositions antecedent to this work. Theresults of such research show that operating performance is significantly related to market structure. Proposal capital dissertation proposal on capital structure dissertation proposal on capital structure capital structure issues dissertation proposal.
Theories of capital structure explained with examples. Due to the homogeneous accounting standard, singlecountry study is preferable over multicountry studies. Optimal corporate investments and capital structure. There are some studies examine the relationship between capital structure, size, growth rate, and stock return e. Bogdan stacescu examination code and name gra 19003 master thesis program. Summary of the relationships between the determinants of capital structure. Capital structure is the way in which a firm finances its operations which can either, be through debt or equity capital or a combination of both, brigham, 2004. Capital structure decision is one of the most challenging and problematic issues faced in business and thereby it is a most crucial decision companies have to make for its survival royal, salah, ahmad and shanaz, 20. This thesis aims to add empirical evidence to the corporate finance literature by looking at two main financing issues, namely firms payout policies and capital structure decisions, in the context of emerging markets. Impact of working capital management on the performance. They research is focused on the smes characteristics, which influence the capital structure. Capital structure determinants of turkish smes in manufacturing industry cakova, ugur m.
Capital structure chapter 15 and chapter 16 contents i. Market structure, which refers to the degree of market concentration within an industry, represents the degree of. His argument shows that capital structure decision is one of the crucial decisions that help to maximize company value. Subsequently, the approach known as the traditional thesis of capital structure relevance has.
It is the mix of debt and equity capital maintained by a firm. The study of capital structure attempts to explain how listed firms utilise the mix of various forms of securities in order to finance investment. Capital structure plays a critical role which enables an organization address the dilemma of whether or not an optimal capital structure can be achieved. A comparative study of public and private firms 1 i.
This is to certify this is thesis prepared by mohammed getahun, entitled. There is a negative relationship between capital structure and financial performance. The objective of this thesis is to describe and analyze the relationship between. Berger board of governors of the federal reserve system washington, dc 20551 u. The effect of bank capital on profitability and risk in.
This research gives a clear picture on the capital structure and a couple of firmspecific determinants of dutch firms, which. Pdf capital structure is important in the business affairs of any going concern. In respect to set an optimal capital structure, the practices of firms are different. Effect of financial management practices on profitability. The impact of capital structure on financial performance. Preliminary thesis report capital structure and ipo. Corporate venture capital corporate venture capital must beseen as one specific form of private equity and more specifically, as a special form of venture capital. Hypotheses the following hypothesis is formulated for the study h 0. In this section, we analyze the optimal capital structure of the firm with the option to reorganize or liquidate. Capital structure of a firm describes the way in which a firm raises capital needed to establish and expand its business activities. This study attempts to extend our knowledge of capital structure and its determinants in listed uk companies. Dynamic analysis of the impact of capital structure on.
Pdf capital structure and firm financial performance. In their study, modigliani and miller 1958 argued that capital structure was irrelevant to firm value. The thesis examines the dynamic impact of capital structure on firm performance in nigeria. Pdf the decision on an optimal capital structure remains an. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. Rodel master thesis business administration page 7 list of tables table 1. The author uses a simulation approach on a sample of 3,000 firms for 152 quarters to assess the firms. Here the data is described, measures of institute of economic studies, charles university, prague and idet, department of eco. Managing ventures capital structure 1 minimize cost of capital achieving the optimal mix of debt, equity and internal capital accessing low cost capital maximizes ventures value 2 raising capital is key to growth new ventures have large working capital and capex needs 3 maintain financial flexibility. This decision in a private enterprise is directed towards the achievement of maximization of the shareholders wealth or value of the firm. Corporate strategy and capital structure brunel university.
This thesis examines the impact of capital structure on firms financial. Determinants of capital structure univerzita karlova. A study on determinants of capital structure in india. It is therefore essential to study the emerging economies as individual countries rather than see them collectively as a group. Abstract capital structure decisions are among the most important and crucial decisions for any business because of their effect on the performance of firms. A theoretical and empirical study of how capital structure influences the performanceandenterprisevalue. However, others examine the effect of capital structure, liquidity, size on. Capital structure of a company should be distinguished from its financial structure. The importance of this study comes from the importance of the relationship between capital structure and stock return.
The issue of external equity is seen as being the most expensive and also dangerous in terms of potential loss of control of the enterprise by the original ownermanagers. The impact of capital structure on financial performance of commercial banks in ethiopia by mathewos woldemariam birru jimma university. Pdf capital structure choice is an important decision for a firm. Managing longterm capital is related to capital budgeting and capital structure.
The high amount of leverage will give lower the wacc the weighted average cost of. The other analyzes the impact of firm capital structure on firm market value. Determinants of capital structure in small and mediumsized enterprises in malaysia a thesis submitted for the degree of doctor of philosophy by hafizah mat nawi brunel business school brunel university london may 2015. The objective of the firm should be directed towards the maximization of the value of the firm the capital structure, or average, decision should be examined from the point of view of its impact on the value of the firm. Summary of the relationships between the determinants of capital structure and financial leverage of dutch listed nonfinancial firms. A panel data approach in partial fulfillment of the requirements for the award of degree of doctor of philosophy ph. An organizations capital structure consists of longterm common stock, preferred stock and retains earning. The idea of relating companys capital structure and its value started since the. Journal of economic perspectives volume 15, number 2spring 2001pages 811 02 capital structure stewart c. The extent literature is full of theories on capital structure since the seminal work of modigliani and miller 1958. Financial management and profitability of small and medium. A theoretical and empirical study of how capital structure. Optimal corporate investments and capital structure martin schultznielsen a dissertation submitted to the school of business and social sciences, aarhus university in partial fulfillment of the requirements for the degree of doctor of philosophy in economics and business march 2014. As is standard in capital structure models, the equityholders internalize the inefficiency of their expost optimal bankruptcy procedure when they issue debt.
The capital structure, ownership and survival of newly. A firms capital structure decision includes its choice of a target capital structure, the average maturity of its debt, and the specific types of financing it decides to use at any particular time. Optimal corporate investments and capital structure 20142 martin schultznielsen phd thesis department of economics and business aarhus university denmark. Bahadur institute of management sciences, university of mysore, india available online at. Capital structure is the way a firm combines equity and debt to gain the maximum value.
Nguyen, km 2001, financial management and profitability of small and medium enterprises, dba thesis, southern cross university, lismore, nsw. The key reference of this thesis is a research paper done by michaels et al 1999. At the same time, and in spite of all research on the topic, capital structure policies were one of the reasons for many. The theory provides insight into a firms capital structure decision in a capital market free of taxes, transaction costs, and other frictions. Three essays on capital structure phd thesis constantinos v. From the findings the researcher recommended that the sample of ethiopian insurance. Capital structure theories introduction capital structure decision is a significant decision in financial management. Iii, issue41,october 201263 effect of corporate governance on capital structure. In terms of structure, the thesis has six chapters. Determinants of capital structure an empirical evidence, us by ra the university of lahore, pakistan. Writing this master thesis has been both learning and difficult. In this study i have researched on capital structure of norwegian firms listed on annual. Thesis for the master of management in finance and.
Instead, the aim of this paper is to test whether capital structure affects firm performance in ukraine. Theory and practice of capital structure in their crosssectional study of the determinants of capital structure, rajan and zingales 1995 examine the extent to which, at the level of the individual firm, gearing may be explained by four key factors, namely, marketto. Review of the traditional theories phd theses this section collects phd theses in the fields on social capital, the pdf file of the thesis with useful examples on how to structure and write a phd thesis. It is the employment of an asset source of finance for which. In their study of capital structure in the g7 economies, rajan and zingales 1995 find gearing in the uk to be positively related to tangibility the. Capital structure and corporate performance of nigerian quoted firms. Capital structure theories the debate on optimal capital structure that leads to maximum market valuation and minimum cost of capital is perennial. The determinants of capital structure boston college.
Master thesis the capital structure, ownership and survival of newly established family firms submission date 01. The results of empirical literature on the relationship between capital structure and performance are contradictory which justifies further research. The capital structure theory was pioneered by modigliani and miller 1958. Researchers are still not agreed regarding the factors, which influence organizations capital structure, although plenty of research has been carried out which focus on primary determinants of capital structure. Relationship between capital structure and performance of non. This dissertation is going to study the determinants of capital structure of. Moreover, studies have been done on both listed and nonlisted firms. What are variables that determine capital structure of pakistani firms. According to these theories, it finds some factors from our sample data. Capital structure decisions and the relative efficiency of chapter 11. Zeynep onder august 2011 this thesis investigates the determinants of capital structure of small and medium sized enterprises smes from manufacturing sector in turkey.
Capital structure and firm performance a study of swedish public companies background and problem. Most firms usually seek to increase the amount of debt finance in their capital structure, in anticipation of improving their performance. Averages and the sample target debt level retail sector 232. The capital structure decision can affect the value of the firm either by changing the expected earnings or the cost of capital or both.
A new approach to testing agency theory and an application to the banking industry allen n. This study caters to the impact of firm capital structure and quality on firm market value by studying listed firms. The paper employ panel regression approach to investigate the impact of capital structure on firms performance in morocco, based on the result of haussmann test, fixed effect fit the first model. Chapter iii concepts and theories of capital structure and profitability. Master of science in business and economics major in finance this thesis is a part of the msc programme at bi norwegian business school. The thesis illustrates to managers the possible strategic. Abor 2005 mentioned that a firm needs to finance its operations and in doing so, they will need to choose a particular combination of equity and debt which forms a capital structure. The thesis consists of seven chapters, including five main standalone research papers. This thesis examines the relationship between financial management and profitability of. The basic thesis of this exploratory investigation was that a corporate strategy perspective may complement the traditional financial paradigm in explaining capital structure in large u.
Most of the research on capital structure has focused on the proportions of debt. Following modigliani and miller 1958, most theories such as the pecking order theory, agency theory and trade off theory have sought to explain capital structure by introducing frictions omitted in the original modigliani and miller framework. These les are distributed under the gpl which should be included here in the future. Determinants of capital structure university of twente student theses. Lambrinoudakis submitted in fulfillment of the requirements for the degree of doctor of philosophy department of banking and financial management university of piraeus piraeus 2012. In section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. The impact of capital structure determinants on smes leverage. The vast majority of previous empirical works analyses the capital structure of firms in economies with highly developed stock markets. The sample consist out of 77 dutch firms, which are listed on the. Corporate strategy and capital structure barton 1988. Capital structure, financial performance, agency cost 1. If the capital markets and financing systems are not supportive of hostile takeovers, stockholder power will be diluted. Introduction the influential paper of modigliani and miller on capital structure irrelevancy has been followed by extensive theoretical research to determine the optimal capital structure.
A study by akintoye2008 was conducted on the sensitivity of performance to the capital structure of a selected food and beverage company in nigeria. Accordingly, our study began with discussing the problem background. In section 1 the most prominent theoretical and empirical findings are surveyed. Variables capital structure roi capital structure 1 0.
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