Determinants of capital structure Essay Example | Topics and Well Written Essays - 5000 words

Determinants of capital structure - Essay Examplees statement of pecuniary position, cash flow statement as well as statement of income of many existing and out(p) companies based all over the world. Initially, a great deal of effort was made to define the fissiparous and dependent variable required for the purpose of regression analysis. The regression analysis that has been done in this especial(a) study is based upon gearing measures. Thus, in order to conduct this analysis, alternative definitions of gearing have been explained in the following paragraphs.Non- virtue liabilities to total assets The control value of this gearing symmetry is the ratio between the total debt asset trade credit and equivalent to total assets (equation 1). The grocery value of this gearing measure can be calculated by adjusting the value of the total assets, deducting the book value of equity and adding the market value of equity (equation 2). The equation can be represented as followsAccording to Rajan and Zingales (1995), the gearing measure serves as a proxy for the liquidation value of a company. The authors also argued that the value of this indicator may be importantly inflated, as it may only represent financial transactions, instead of assets.Debt to Total Assets This gearing measure is the ratio between the total debts to total assets (equation 3). The market value of this multiple is determined by adjusting the asset, by deducting the book value of equity and adding the market value of equity (equation 4) (Phillips, Libby and Libby, 2011 Fridson and Alvarez, 2011). The equation can be represented as followsDebt to Capital This gearing measure is the ratio between the total debts to capital. The capital in the denominator represents the total debt gain the equity, which includes the preference shares as well (equation 5) (Rose and Hudgins, 2008). The market value of this gearing measure is calculated by adjusting market value of equity, instead of adjusting the book value of equity (equation 6). The equation can be