Capital structure and firm value - Literature review Example

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Capital structure and firm value

Finally, the relationship between various aspects like credit ratings, target leverage, short term financing etc and their influence on the firm’s financing policy have also been discussed. Introduction The financial managers of a company work towards achieving an optimal capital mix. In large companies there is a separate financial department that takes care of financing issues. The managers strive hard to achieve a right mix of debt and equity as the capital base of the firm determines the cost of capital. The point at which the average cost of capital is minimum, the value of the firm is maximum. This point is referred as ‘optimal’. Methodology The choice of capital structure and firm value is an important topic in financial literature. This paper examines various capital structure theories like pecking order, trade-off theory etc and its impact on capital structure decisions. Mostly, the secondary sources of data have been used to determine the relationship between the capital structure of the firm and its value. ...Show more

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Capital Structure & Firm Value Table of Contents Abstract 3 Introduction 4 Modigliani & Miller Theory 4 Pecking-order theory 7 Trade-Off Theory 8 Setting target leverage levels 12 Managing Short term capital structure 14 Link between credit ratings and capital structure 14 Financing long term investment 16 Financial Engineering and Firm Value 17 Capital Structure Affecting Firm’s Business and Financial Risks 18 Conclusion 19 Reference 20 Bibliography 24 Abstract The capital structure forms an integral part of the financing policies of the company…
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