capital structure

Topics: Capital structure, Corporate finance, Finance Pages: 30 (8165 words) Published: November 9, 2013
Capital Structure
Financial Seminar
DFI 605

Group Members
Nidhi Batta

D61/79041/2012

Caleb Musau Kivuva

D61/79601/2012

Tom Mbuya Odundo

D61/78251/2012

CathrineWanjiku Kamau

D61/60682/2013

Daniel Mwangi Mwaniki

D61/84153/2012

Ndiangui James Wambugu

D61/79627/2012

Submitted to: Mr. Mirie Mwangi
September - December 2013

Submitted in partial fulfilment of the requirements of the
Masters in Business Administration degree at the University of Nairobi.

TABLE OF CONTENTS
TABLE OF CONTENTS...................................................................................................................................... II LIST OF ABBREVIATIONS ........................................................................................................................III 1. INTRODUCTION ...................................................................................................................................... 1 1.1 BACKGROUND................................................................................................................................................... 1 1.2 THEORY REVIEW OF CAPITAL STRUCTURE ............................................................................................................... 2 1.2.1 Modigliani-Miller Theory....................................................................................................................... 2 1.2.2 Trade-Off Theory ................................................................................................................................... 3 1.2.3 Pecking-Order Theory............................................................................................................................ 3 1.2.4 Signalling Theory ................................................................................................................................... 4 1.2.5 Market Timing Theory ........................................................................................................................... 4 1.3 DETERMINANTS OF CAPITAL STRUCTURE ................................................................................................................ 5 1.3.1 Growth .................................................................................................................................................. 6 1.3.2 Size ........................................................................................................................................................ 6 1.3.3 Tangibility ............................................................................................................................................. 6 1.3.4 Profitability ........................................................................................................................................... 7 1.3.5 Industry Median Debt Ratios ................................................................................................................ 7 1.3.6 Risk ........................................................................................................................................................ 8 1.3.7 Credit Ratings ........................................................................................................................................ 8 1.3.8 Competition and Regulatory Changes .................................................................................................. 8 1.3.9 Behavioral Corporate Finance ............................................................................................................... 9 2. EMPIRICAL EVIDENCE ....................................................................................................................... 10 2.1 GLOBAL CONTEXT ............................................................................................................................................ 10 2.1.1 Relationship between Capital Structure and...

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