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Capital structure is the important part of the business performance. Here paper investigates the theories of the capital structure on the basis of review, from the start-up point. The focus and considered from Modigliani and Miller‟s capital structure irrelevance theory to recent theories, such as the pecking order and the market timing theory. There are various studies which have examined capital structure determinants also in the corporate finance literature. The famous theories on capital Structure are Pecking Order, Trade off theory and Agency Theory. As per these theories there are various determinants such as assets structure, profitability, growth opportunities, liquidity, company size, and dividend policywhich affect the leverage of the firm,

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research paper on capital structure pdf

In this paper the authors survey capital structure theories, from the start-up point, which is considered Modigliani and Miller's capital structure irrelevance theorem, to recent theories, such as the pecking order and the market timing theory. For each type of model, a brief overview of the papers surveyed and their relation to each other is provided.

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This paper seeks to examine the impact of stock volatility on capital structure choice of listed Nigeria firms in influencing their corporate financing strategy and performance analysis. The research work will examine if western capital structure theories (static trade-off, agency cost and pecking order theories) are applicable to listed Nigeria firms. The work also establishes that the balance of the argument supports the view that good corporate financing strategies impact positively on firms' performance. The research study analysed 47 listed firms on the Nigeria stock exchange over the period 1997-2007 using the OLS regression with the objective of observing firm effect on leverage on observed firms. The theoretical contributions of trade-off, agency and pecking order theories were examined in assessing impact of stock volatility on financing patterns for listed Nigerian firms. Results shows that Nigerian firms do not follow observed patterns observed in western countries. In analysing firm leverage, Nigeria firms were found to have a positive non-statistical significant correlation between income variability and leverage. Results reflect that to a large extent Nigeria firms do not follow the same financing pattern with western countries. INTRODUCTION The fluctuation in price of stocks and its influence on choice of capital structure for firms have drawn attention of both the academia and financial market participants in recent past. The importance of stock volatility is widespread in finance with portfolio managers, corporate treasurers, risk arbitrageurs having a close watch on stock volatility trends of their chosen firms as changes in prices of stocks could have a major impact on the funding pattern for the firm and expected cash flow for the firm and investors alike (Gregoriou, 2010): Firms raise capital using different combination of instruments in financing their investment decisions i.e. primary listing, secondary listing or issuing debt using different combinations of instruments such as ordinary equity, debt and hybrid securities which includes; preference shares, convertible and warrant debt as this tend to affect the capital structure of the firms.

Evans Kioko

Capital structure decision poses a lot of challenges to firms. Determining an appropriate mix of equity and debt is one of the most strategic decisions public interest entities are confronted with. A wrong financing decision has the tendency of stalling the fortunes of any business. Therefore, if managers are to achieve the goal of wealth maximization, conscious steps must be taken in the right direction and at the right time to identify those factors that must be taken into cognizance in determining appropriate financing mix. It is upon this premise that this conceptual piece is designed to guide the top echelons of corporate managers in capital structure decisions. The paper explores a vast body of literature in articulating critical issues in capital structure decision.

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