Capital structure :A sectoral case study of Indian corporate (period- 2004-06)
Published: 2011
Author(s) Name: Dr. Amarjeet Khalsa
Locked
Subscribed
Available for All
Abstract
Since the objective of financial management is to
maximize shareholder wealth, the key issue in the
capital structure decision is: What is the relationship
between capital structure and firm value?
Alternatively, what is the relationship between
capital structure and cost of capital? Remember that
valuation and cost of capital are inversely related.
Given a certain level of earnings, the value of firm
is maximized when cost of capital is minimized and
vice versa.
There are different views on how capital structure
influences value. Some argue that there is no
relationship whatsoever between capital structure
and firm value; others believe that financial leverage
(i.e. the use of debt capital) has a positive effect on
firm value up to a point and negative effect thereafter;
still other contend that, other things being equal,
greater the leverage, greater the value of the firm.
Key Words: Capital structure, value of firm, leverage, growth & sectors.
View PDF