Premium Essay

The Valuation Effects of Long-Term Changes in Capital Structure

In: Business and Management

Submitted By arfatali
Words 5445
Pages 22
The valuation effects of long-term changes in capital structure

The objective of this study is to analyze and examine the changes in capital structure that do not affect the value of the firm and we have to know the relationship between the capital structure and the firm’s value. We are try to learn the changes in capital structure that do not affected the firm’s value and want to know relationship between the capital structure and the value of firm. For this study we used five independent variable that are profitability , growth , leverages , size and intangible ratio on the other hand we have one dependent variable that are firm value. We collected data from the Karachi stock exchange (KSE) and State Bank of Pakistan.

Contents CHAPTER 1: INTRODUCTION 4 1.1 Background of the study 4 1.2 Problem Statement 6 1.3 Purpose of the study 7 1.4 Significance of the study 7 1.5 Operational definitions of the variables 8 1.5.1 Leverage: 8 1.5.2 Market to Book Value: 8 1.5.3 Profitability: 8 1.5.4 Growth: 8 1.5.5 Size: 8 1.5.6 Intangible: 9 CHAPTER 2: LITERATURE REVIEWS 10 2.1 Theoretical Background: 10 2.2 Empirical evidence: 11 CHAPTER 3: METHODOLOGY 17 3.1 Research Method 17 3.2 Research Model 17 3.3 Research Hypothesis: 18 3.4 Data Collection 18 3.5 Population and Sample Size 18 3.6 Research Technique 19

Background of the study
The aim of every organization to adjust their long term and short term debt but mainly in this study it is focused on the long term debt that are occurred through the IPO. Mostly firms issues the debt and equity and by this there would be permanent change in capital structure and that do not affect the firm value The objective of the study is to find out…...

Similar Documents

Premium Essay

Multinational Cost Me Capital and Term Structure

...MULTINATIONAL COST OF CAPITAL AND CAPITAL STRUCTURE LEARNING OBJECTIVES The specific objectives of this chapter are to: l explain how corporate and country characteristics influence an MNC’s cost of capital, explain why there are differences in the costs of capital among countries, and explain how corporate and country characteristics are considered by an MNC when it establishes its capital structure. l l An MNC finances its operations by using a mixture of fixed interest borrowing and equity financing that can minimize the overall cost of capital (the weighted average of its interest rate and dividend payments). By minimizing the cost of capital used to finance a given size and risk of operations, financial managers can maximize the value of the company and therefore maximize shareholder wealth. 25 26 MULTINATIONAL COST OF CAPITAL AND CAPITAL STRUCTURE BACKGROUND ON COST OF CAPITAL Apart from working capital, a firm’s capital consists of equity (retained earnings and funds obtained by issuing shares) and debt (borrowed funds). With these funds a firm invests in a portfolio of projects, each project potentially offering different risks and different returns. The interest rate that the firm applies or charges to these projects (the cost of using the firm’s capital) will therefore vary according to the project’s particular risk. Profitable investment in this context is where the firm invests in projects that achieve returns greater than that required by their risk. A......

Words: 19422 - Pages: 78

Premium Essay

Long Term Effects of Concussions in Sports: Disease, Depression, and Social Effects

...Long Term Effects of Concussions in Sports: Disease, Depression, and Social Effects When discussing the very popular and controversial topic of concussions in sports, there are many questions raised from the public about the effects of these concussions on ones life. For the past few decades, the sporting world has been dealing with head injuries in sports and finding new and better ways to deal with and prevent them. With most people involved in sport now knowing the severity of head injuries and there long term effects, it is not uncommon to hear more and more long term effect stories and how these injuries have impacted athletes’ lives. Psychological changes, brain disease, social declination, and even suicide caused from depression have been documented in recent years and has the public growing more and more curious to what the long term effects of head injuries are and what the best way to deal with them is. For professional athletes, the “loss of identity is evident”(Caron 175) and some may even lose their whole livelihood due to head injuries. In this paper I will be examining the aforementioned long-term effects of psychological changes, brain disease, and deterioration of social abilities. Long term effects of head injuries are an epidemic and by identifying these effects and being aware of symptoms or signs may help us better understand them. In recent years, psychological problems have been identified as one of the most prevalent effects caused by......

Words: 1343 - Pages: 6

Premium Essay

Short and Long Term Change

...environment where changes that occur in one part of the world or one business region can have immediate and far-flung repercussions across the globe. Organizations that are able to quickly adapt to changing environmental conditions are more likely to succeed. Organizations need to manage change to survive and to create a competitive advantage. Thus, most organizations continually plan and implement some type of change management strategy. According to Weiss (2012), “planned organizational change is a process that moves companies from a present state to a desired future state with the goal of enhancing their effectiveness” (section 1.1, para. 2). An organization should have a planned change strategy and a change model to effectively lead and manage organizational adaptation. XYZ, Inc. is a high-end retail chain that sells luxury watches, jewelry, and handbags. XYZ is opening a store in Shanghai, China and has put an executive in charge of its first international expansion. This will be a short-term, small-scale change for the organization. After one year, the executive is also expected to begin implementation of a long-term, large-scale change by opening additional stores in Brazil, Russia, India, and China (also known as the B.R.I.C. countries). The purpose of this commentary is to identify which change model should be followed for the short-term changes, describe which change model should be followed for the long-term changes, and discuss the effects that these......

Words: 2125 - Pages: 9

Premium Essay

Long Term Effects of Childhood Obesity

...pounds they add should be in direct proportion to their growth. If they take in more calories than they burn off, the result can be a significant increase in weight. According to Ogden, Carroll, Kit, and Flegal (2012) “childhood obesity has more than doubled in children and tripled in adolescents in the past 30 years” (p.483). The effects of obesity are varied and include the risk of heart disease, high blood pressure, diabetes, breathing problems, trouble sleeping and can even result in social isolation and depression. But what are the root causes of this epidemic? The causes themselves are just as varied and just as numerous as the effects. They encompass a wide variety of convoluted elements such as poor eating habits, lack of exercise, low self-esteem, family issues, peer problems and can even include medical causes such as illness or depression. One cause of childhood obesity is overeating and poor eating habits. Children are submerged in an environment that is conducive to overeating and maintaining their poor eating habits. In today’s fast paced society, some parents have little time to plan and assemble healthy meals for their children. Long work days and little time spent with family leads to the use of more processed foods and fast food substitutes instead of healthy home cooked meals. Some families are faced with geographic challenges when providing healthy foods. They live in rural settings that make access to stores with healthy food options unattainable, or......

Words: 1152 - Pages: 5

Premium Essay

Capital Structure

...Capital Structure Stewart C. Myers The Journal of Economic Perspectives, Vol. 15, No. 2. (Spring, 2001), pp. 81-102. Stable URL: The Journal of Economic Perspectives is currently published by American Economic Association. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. The JSTOR Archive is a trusted digital repository providing for long-term preservation and access to leading academic journals and scholarly literature from around the world. The Archive is supported by libraries, scholarly societies, publishers, and foundations. It is an initiative of JSTOR, a not-for-profit organization with a mission to help the scholarly community take advantage of advances in technology. For more information regarding JSTOR,......

Words: 12907 - Pages: 52

Free Essay

Capital Structure

...Global Economic Review Vol. 37, No. 1, 107Á123, March 2008 Performance and Capital Structure of Privatized Firms in Europe ´ ´ MARIA JOSE ARCAS & PATRICIA BACHILLER Faculty of Economics and Business Administration, Department of Accounting and Finance, University of Zaragoza, Zaragoza, Spain ABSTRACT The objective of this paper is to analyze whether there are differences in performance between private firms and recently privatized firms in the European Union, as well as to determine whether ownership (state-owned versus private) and regulation affect capital structure. Focusing on economic reasons that justify privatizations, we analyze whether there are differences between recently privatized state-owned enterprises (SOEs) and private firms in their profitability, leverage and efficiency during the period 1999Á2002. Also, we analyze the determinants of the capital structure of these firms. Contrary to previous studies, our results show that privatized firms are not less efficient than firms with private ownership. KEY WORDS: Privatization, efficiency, capital structure, regression, Wilcoxon test Summary In recent decades, the privatization of state-owned enterprises (SOEs) has been one of the most common policies carried out in economies worldwide and the Organization for Economic Cooperation and Development (OECD) countries have also been involved in this phenomenon. Many studies have focused on the impact of privatization on the performance of the privatized......

Words: 7717 - Pages: 31

Premium Essay

Long Term Effects of Exercise

...1. What are the long term effects of exercise on… a) the cardiovascular system b) the respiratory system c) the muscular system d) the skeletal system a. The long-term effects of exercise on the cardiovascular system are the heart becomes bigger and its walls become thicker and the coronary arteries become better at supplying the heart with blood. It will be able to pump more blood per min which makes the heart more capable of a higher heart rate, stroke volume and minute volume. b. The long-term effects of exercise on the respiratory system are increasing the air sacks in the lungs, clearing out any mucus that may be in any of them, increasing the vital capacity of the lungs and tidal volume of the lungs as well as increasing the strength of the diaphragm muscle. The lungs will become healthier and produce a greater number of alveoli. c. The long-term effects of exercise on the muscular system are the tendons (a connective tissue that connect muscle to bone) become stronger, our aerobic energy system become more efficient, slow twitch fibres increase in size. Also our muscles hypertrophy become bigger and individual muscle fibres become thicker becoming able to cope with lactic acid. Lastly the chemical reaction in our muscle that produces energy increase in quantity and the removal of lactic acid is faster. d. The long-term effects of exercise on the skeletal system are the mineral content of our bones increases and bones get......

Words: 405 - Pages: 2

Free Essay

Long Term Effects of Physical Abuse

...English 50 Cause and Effect Professor Morrison 11 May 2011 Long Term Effects of Physical Abuse There are many types of abuse that a child can be put through. Physical abuse makes up about 25 percent of the reported cases of abuse a year ( Some long term effects are physical health consequences, psychological consequences, and behavioral consequences. Physical health consequences caused by physical abuse are impaired brain development, poor physical health and shaken baby syndrome(sbs). Physical abuse has shown, in some cases, to cause important regions of the brain to fail to form properly (Perry, B.D 2002) Physical abuse has also been known to cause poor physical health such as sexually transmitted diseases. Shaken Baby Syndrome(SBS) is another physical health consequences due to the fact that it can cause blindness, learning disabilities in infants. Psychological consequences cause by physical abuse are poor mental and emotional health, cognitive difficulties, and social difficulties. Many of the young adults develop some type of psychiatric disorder early in life. As researchers stated, "These young adults exhibited many problems, including depression, anxiety, eating disorders, and suicide attempts (Silverman, Reinherz, & Giaconia, 1996). Children that have been abused or neglected have been known to do poorly in school. Children that are abused or neglected often have difficulties in relationships later in life with other......

Words: 534 - Pages: 3

Premium Essay

Capital Structure

...Vol. 2 No. 19 [Special Issue - October 2011] Perceived Relationship between Corporate Capital Structure and Firm Value in Nigeria Semiu Babatunde ADEYEMI Department of Accounting University of Lagos Lagos, Nigeria Collins Sankay OBOH Department of Accounting University of Lagos Lagos, Nigeria Abstract This study examined the empirical effects of corporate capital structure (financial leverage) on the market value of a selection of firms listed on the Nigerian Stock Exchange. Both primary and secondary data were obtained for analysis employing both descriptive and inferential statistics for analysis. A sample size of 150 respondents and 90 firms were selected for both primary data and secondary data respectively. Descriptive statistics was used to analyse the primary data, while Chi-Square was used to draw inference of perceived relationship between capital structure and firm value. The results of the study suggested that a positively significant relationship exists between a firm’s choice of capital structure and its market value in Nigeria. The study suggested that listed firms in Nigeria should strategically plan and manage their capital structure in order to maximize their market values. Keywords: Capital structure, market value, Nigeria, debt, equity. 1. Introduction 1.1 Background to the Study After the Modigliani-Miller (1958 and 1963) paradigms on firms’ capital structure and their market values, there have been considerable debates, both in theoretical and......

Words: 7951 - Pages: 32

Premium Essay

The Effect of Capital Structure When Expected Agency Costs Are Extreme

...The Effect Of Capital Structure When Expected Agency Costs Are Extreme The Effect of Capital Structure when Expected Agency Costs are Extreme Harvey, C.R. Lins, K.V. Roper, A.H. Journal of Financial Economics 74 (2004) 3-30 RESEARCH MOTIVATION The objective of this paper is, using international evidenceto investigate whether debt can mitigate the effects of agency and information problems. Prior theoretical research has shown that debt can be used to align managers’ interest. More specifically, when a meaningful conflict exists between outside shareholders and management due to the separation of ownership and control, debt helps to discourage overinvestment of free cash flow by self-serving managers (Jensen Meckling [1976], Jensen [1986] Stulz [1990] and else). Moreover, even without conflicting interest, debt gives management the opportunity to signal its willingness to pay out cash flows or be monitored by lenders or both, and thus to show that they do not or will not overinvest (Ross [1977] and else). Benefits to debt could be greater (1) when management has a large base of assets in place that it can exploit, because assets in place generate cash flow that can lead to either overinvestment or the outright diversion of corporate funds (Jensen [1986] and else) or (2) when management has few future growth opportunities, because when a firm has expected future growth opportunities, debt can limit management’s ability to pursue positive net present value projects,......

Words: 2522 - Pages: 11

Premium Essay

Child Abuse and Its Long Term Effects

...Child Abuse and its Long Term Effects Franklin Mosley Christian Counseling 301 B02-LUO Abstract Child abuse is present in our society, in the United States and throughout the world. This paper briefly examines various issues surrounding child abuse and its long term effect upon the development of the abused. The goal of this paper is to underscore the fact that child abuse is prevalent and that help and treatment can be administered to both the abused and the abuser to end the crippling cycle of abuse in homes. Child Abuse and its Long Term Effects Child abuse is present in our society, in the United States and throughout the world. This paper briefly examines various issues surrounding child abuse and its long term effect upon the development of the abused. The goal of this paper is to underscore the fact that child abuse is prevalent and that help and treatment can be administered to both the abused and the abuser to end the crippling cycle of abuse in homes. The categorizing of types of abuse varies from country to country and therefore empirical statistics are very hard to establish. Definitions of child abuse also vary greatly, not only world-wide but also between states. The Federal government offers guidelines for states. Federal legislation provides guidance to States by identifying a minimum set of acts or behaviors that define child abuse and neglect. Note that these guidelines are classified as minimum standards. The Department of Health......

Words: 2965 - Pages: 12

Premium Essay

The Long-Term Effects of Binge Drinking on University Students

...The Long-Term Effects of Binge Drinking on University Students Sociology Abstract Binge drinking on university campuses poses a concern for serious health issues and negative social implications. Education and awareness, about the non-gender specific short and long term effects associated with binge drinking, provides a mechanism for students to make informed decisions about the alcohol consumption levels they will indulge in. This report illustrates the risks associated with binge drinking and offers an info graphic for observation, and consideration by students that challenges them to stop and think before they engage in risky drinking behaviours. The information for this report is drawn from the research findings of studies carried out by a variety of academics and professionals. The objective is to alert or reiterate, to the entire university student population, the risks associated with binge drinking, and the hope is that students will be oriented toward making choices related to their optimal health and wellbeing and avoid binge drinking. For many students, relaxing after a difficult week of study and research is complemented by drugs and alcohol, and sometimes way too much of either or both. Evidence of imbibing plentifully can be witnessed on campus after wild nights, reminders of excess that lead binge-drinkers to unhealthy mornings and possibly to poor exam or paper results. The “What’s Your Cap?” initiative has......

Words: 2794 - Pages: 12

Premium Essay

Long Term Effects of Children of Addictive Parents

...PSY 281: Developmental Psychology 24 November 2012 Long Term Effects of Children of Addictive Parents Nothing makes a child grow up faster than having a parent who is addicted to drugs. A child of an addicted parent has no choice but to act as an adult. These children are often left alone and when they aren’t alone, their addicted parent is usually passed out in a drug induced stupor; leaving the child to fend for themselves and/or their siblings. Does having a drug addicted parent have an effect on a child’s emotional development? If so, does this form of abuse that is recognized in the category of neglect have a long lasting effect on the child into adulthood? A child of an addict is constantly exposed to risks more so than the average child. The children are placed in harmful situations such as being minimally supervised, extended exposure to secondhand smoke; exposure to HIV infected needles and are placed in situations where they can accidentally ingest the parent’s drugs. There are many different factors that lead to child abuse but poverty, alcohol, and drug use seem to be to main component to the disturbing increase of neglected children. Children raised in an unloving, unresponsive household are emotionally neglected. In addition, neglected children are more likely to come from single parent households. Overall incidents of child abuse cases have fallen, however; abuse of children in single-parent households still holds the overall national......

Words: 1598 - Pages: 7

Free Essay

The Industrial Revolution and Its Long-Term Effects

...The Industrial Revolution and Its Long-Term Effects Introduction The Industrial Revolution has been viewed as one of the most influential events to occur on to the economic world in the history of modern society. The invention of many new items that all helped people performed certain tasks more efficiently lead the world to be able to produce many more goods in a much shorter time frame. The impact of the Industrial Revolution on the world as a whole was that it catapulted the world economy into an almost frenzy like state, in which people had access to a much wider variety of goods and services offered to them by businesses. The impact that this event had on the worker’s life was not necessarily a good or bad thing, however. With the advent of new, more efficient technology, workers were able to more easily accomplish certain tasks that would have taken them a much longer time to complete before the start of the Industrial Revolution, however there were some serious negative side effects of such a quick influx of technology. With such new practices and ideas put into the workplace, many workers were expected to be as efficient as the new ways of producing a product or service, and as a result, their health and safety were often overlooked. The Industrial Revolution has had lasting effects on the entire population in almost every facet of our lives, as both consumers and workers, and will always be remembered as one of the driving forces behind the way in which the......

Words: 2435 - Pages: 10

Premium Essay

Capital Structure

...Bachelor of Finance & Banking Thesis -------------------------------------- The impact of capital structure on profitability of listed construction companies on Hanoi Stock Exchange from 2008 to 2013 FALL 2014 Instructor Mr. Tran Viet Dung Group members Nguyen Thi Thanh Tam (FB00464) Nguyen Thi Viet Chinh (FB00405) Hoang My Linh (FB00073) Dang Thi Hong Hanh (FB00253) Nguyen Thi Kieu Trang (FB00078) Hanoi, December 2014 Table of Contents List of tables 3 List of figure 4 Abstract 5 Chapter 1: Introduction and Thesis Outline 6 1. Background 6 2. Research objective 8 3. Research question 8 4. Data and methodology 8 4.1 Data 8 4.2 Methodology 9 5. Thesis outline 9 Chapter 2: Literature Review and theoretical models 10 1. Theorem review 10 1.1. Modigliani- Miller theorem review 10 1.2. Agency theory 12 1.3. Trade-off theory 14 1.4 Pecking Order Theory 19 1.5 Market-timing theory 20 2. Variable review 22 2.1. Return on Asset and Return on Equity 22 2.2. Capital structure 23 3. Empirical studies 24 3.1. Relationship between capital structure and firm performance 24 3.2. Empirical studies of relationship between determinants of capital structure and profitability 28 4. Summary of the empirical studies 30 Chapter 3: Methodology 31 1. Introduction 31 2. Data collection methods 32 2.1. Sampling techniques 32 2.2. Data collection procedure 34 3. Variables and......

Words: 20311 - Pages: 82