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Impact Of Financial Crisis On The Capital Structure Decision Making Of The Firm - Essay Example
Author : quitzonmargaret
Finance & Accounting
Pages 12 (3012 words)
IMPACT OF FINANCIAL CRISIS ON THE CAPITAL STRUCTURE DECISION MAKING OF THE FIRM INTRODUCTION Capital structure of the firm is a dynamic decision and this decision faces impact from large number of factors (Miglo, 2010). Accounting for the wide variety of factors both internally and externally, firms’ capital structure responds to changing dynamics…
The underlying discussion has developed the reference from the literature related to the capital structure theories and the brief about the financial crisis of late 2000s. The discussion also addresses the firms’ response to the financial crisis by adjusting mix of the capital structure. Therefore, for clear assessment along with overall global assessment, capital structure adjustments of Tesco and Dell have been discussed in the report. The report also has presented alignment of the responses of the capital structures with theories. FINANCIAL CRISIS Financial crisis have always been the dominant factor for determining trends and practices in the economic scenario. A financial crisis traces the reasoning from the excessive loans such as sub-prime mortgages as well as financial instrument of debt derived from such loans (Mizen 2008). Crisis originated from US in late 2000s spread across Europe and then to world owing to the benefit of diversification that businesses attempted to gain from spreading risk across local and international markets (Fosberg, 2010). First strong hit from financial crisis and its intensity was revealed in late 2007 upon the Bear Stearns’ declaration about evaporation of the value of major assets held by Bear Stearns’s hedge funds. ...