Capital Structure Definition. Trade-off theory explanation to determine the capital structure. Common factors having most impact on firm’s capital structure in retail sector. Analysis the influence they have on the listed firm’s debt-equity ratio.
Аннотация к работе
(1989); Titman &Wessels(1988); Shyam-Sunder & Myers(1999)), Swiss firms (Gaud et. al.(2005))), cross-country analysis (Jong et. al. (2008); Rajan&Zingales(1995); Alves& Ferreira (2011)), etc. This permanent equilibrium states that the only possible way for the companies to change their capital structure is sudden shock that makes their equity market values drop. In real-market conditions it is quite unlikely as debt or equity issuance or repurchasing inevitably generates transaction costs and hence there is higher probability that firms would rarely adjust their capital structure reflecting the transaction costs incurred. Original Kraus &Litzenberger model doesn’t account for these transaction costs. On the other hand, Myers was aware of such costs and he implied them as a possible explanation why firms didn’t change their capital structure as frequently as the static trade-off model predicted. As it was mentioned before, the model is a single-period one, so, it deals with a firm’s capital structure paying no attention to the other periods. This is the core disadvantage of this approach. Capital structure in each period is inevitably correlated with the one in preceding periods and firms are likely to account for future expectations when making decisions on debt-equity ratio. There are numerous empirical researches of capital structure determinants been performed through the past two-three decades. They have resulted in various findings towards relations between a firm’s leverage ratio and its certain characteristics. One of the most coherent conclusions in empirical research towards capital structure is that lower leverage gives company higher profitability (Fama& French (2002)).