The administrative centre structure shows just how much financial leverage a company is wearing its books in terms of other capital such as for instance equity. Potential investors consider the capital structure and identify the amount of debt raised because of the company and this helps them to evaluate the possibility of financial distress. A risk that is high of distress is associated with bankruptcy. Yet, having debt that is too little the books can prevent the company from keeping up with the industry growth rates. Therefore, it is important to comprehend the important elements of the capital structure as well as its impact on company value (Chowdhury and Chowdhury, 2010).
Companies have been engaging in mergers and acquisitions (M&A) for several decades. In reality, it has been one of the major modes of growth for companies operating in saturated markets. It really is a simple method to boost a company’s sales, enter a brand new market or increase efficiency through synergy. However, M&A are not successful in every single case. There were many instances where a merger or an acquisition turned out to be a value destructor instead of a value creator. Therefore, it is critical to investigate whether M&A activity actually creates value or not (Zollo and Meier, 2008).
Finance literature has two views that are different the dividend policy. One view implies that dividends are irrelevant for value whereas one other view states that dividends have implications for value. The original theory of irrelevance of dividends for value was empirically tested by DeAngelo and DeAngelo (2006) and the authors rejected the model which was suggested by Miller and Modigliani (1961). The study demonstrated that the payout policy was relevant and investment policy was not the only determinant of firm value. The observations were inherent even to markets that are frictionless. However, the study taken notice of payouts that are total than cash dividends only. Thereby, no distinction was made between distributing earnings to shareholders by means of dividends or stock repurchases (Handley, 2008). Continue reading →