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... The various means of financing represent the financial structure of an enterprise. Traditionally, short term borrowings are excluded from the list of methods of financing the firm’s capital expenditure, and therefore, the long-term claims are said to form the capital structure of the enterprise. The term capital structure is used to represent the proportionate relationship between debt and equity. In other words, Capital structure refers to the mix of long term sources of funds, such as debentures, long-term debt, preference share capital and equity share capital including reserves and surpluses (i. ...
The determination of an optimal capital structure is a formidable task and one has to go beyond the theory. ... The traditional view holds that there is an optimum financial structure that maximizes the value of the firm. ... no taxes on corporate income and perfect capital markets) the value of the firm is not influenced by a firm’s financing mix. ... However there is no unanimity among the researchers on the determinants of the financial leverage or capital structure. ... To analyze the trend in capital structure of selected companies from Indian private corporate sector. ... To determine the factors affecting the capital structure
A brief review of relevant literature
There have been some researches in the past regarding the capital structure decision. Following is the review of some of the relevant literature:
Modigliani and Miller (1958) were the first to present a formal model on valuation of capital structure. They showed that under the assumption of prefect capital market, equivalent risk class, no taxes, 100 percent dividend payout ratio and constant cost of debt, the value of firm is independent of its capital structure. When corporate taxes are taken in to account, the value of firm increases linearly with debt-equity ratio because of interest payment being tax exempted.
Approximate Word count = 1408
Approximate Pages = 5.6
(250 words per page double spaced)
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