cs mgmt of mfg indst-proposal
TRANSCRIPT
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CAPITAL STRUCTURE MANAGEMENT OF MANUFACTURING
INDUSTRIES OF NEPAL
A Thesis Proposal
Submitted to Faculty of Management for the Fulfillment of the Master of
Business Studies
Tribhuvan University
New ori!on "ollege# $upandehi# Nepal
By
%ila &hanal
Master of Business Studies
T'U' $eg'No' ()*)+,)-*.),/
Symbol No' ++011*+
Feb# .1*+
*
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1. General Background
The capital structure concept has an importance place in the theory of financial
management' Financial structure refers to the way for firm2s assets are financed' 3t isentire right hand side of the balance sheet' "apital structure is the financing of the firm
represent primarily by long term debt# preference share and common stoc4# but
e5cluding all short term credit' Thus# a firm6s capital structure is only a part of its
financial structure' "apital structure policy involves a choice between ris4 and e5pected
return' "apital structure of company consists of debt and e7uity securities# which provide
fund for a firm on the same way capital structure made of debt and e7uity securities#
which comprise a firm2s finance of its assets# it is a permanent finance of a firmrepresented by long term debt plus preferred stoc4 plus net worth'
The term capital structure refers to the proportion of debt and e7uity capital' Thus# the
financing decision of a firm relates to choice of proportion of debt and e7uity to finance
the investment re7uirement' A proper balance between debt and e7uity is necessary to
ensure of trade off between ris4 and return of these financing' A capital structure with
reasonable proportion of debt and e7uity# capital is called optimal capital structure'
8ecision ma4ing is a process of choosing among alternatives' Alternative having
minimum cost with reasonable return to other is acceptable' The cost of capital refers to
the discount rate that would be used in determine the present value of the estimated
future cash proceeds and eventually deciding whether the pro9ects worth under ta4ing or
not'
The term of capital structure means the financial planning according to which the assets
of the company are furnished' The term capital structure means the proportion of
different types of securities issued by a firm where the firm must should have to ma4e
pertinent capital structure decision in identifying e5actly how much capital is needed to
run their operations smoothly' :enerally# fund is ac7uired by the firm two ways# e7uity
and debt' ;7uity provides the ownership fund of the shareholders and the debt or
borrowed fund high a fi5ed charge irrespective to the earning of the firm'
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The capital# which can be collected from the owners of the organi!ation# is called e7uity
capital' 3t provides ownership of the firm to its shareholder# who will get a return as per
the profitability capacity of the company when they made capital investment' Actually# it
is not compulsory to pay return in fi5ed rate of e7uity shareholders' The second and the
ma9or source of borrowing the fund of capital is debt' 3n which we pay certain amount as
the investment for it'
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Thus# the firm should strive to use optimal level of capital structure as part of its value
ma5imi!ation ob9ective' 3n this bac4ground# a study devoted to e5pose more facts about
determining factors of capital structure may be rewarding one and this study is one
additional attempt in this direction'
. S!a!e"en! o# !$e Pro%le"
Previous studies on determinants of capital structures attempted to define
the optimal capital structure for firms from various perspectives# such as ban4ruptcy
costs ?Berger et' al'*,,(@# agency theory ?ensen and Mec4ling# *,/-C Smith and
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unregulated industries such as davenport ?*,/*# */)*-.@#
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&. Re'earc$ O%(ec!)*e'+
The ma9or ob9ective of the study is to analy!e the capital structure in Manufacturing
3ndustries of Nepal' The following are the specific ob9ectivesD
*' To e5amine the si!e and structure of capital structure ratios over time'
.' To analy!e the structure of 4ey financial ratios in relation to capital structure'
' To e5amine the relationship of debt ratios with non)debt ta5)shield# growth
opportunities# profitability and li7uidity'
+' To analy!e the factors affecting capital structure'
(' To e5amine the capital structure management practices in Manufacturing3ndustries'
-' To identify the preference ran4ing of %ong)term sources of funds among
manufacturing industries that follows a financing hierarchy'
4.
Theoretical Framework:
:enerally the term capital structure is referred to represent the proportionate relationship
between the different forms of financingC it refers to the composition of firm2s capital
structure with different sources of funds' Some time the distinction is made between the
term Gfinancial structure and capital structure2' The term financial structure is used to
represent the way a firm2s finances its total assets that cover entire capital and liability
side'
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number of factors that may influence the financial structure of companies' As argued by
Titman and
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Inde,enden! -ar)a%le'
%i7uidity K "urrent Assets"urrent %iabilities
:rowth Epportunity K Percentage "hange 3n Total Assets
Non)8ebt Ta5)Shield K 8epreciationTotal Assets
Profitability K ;arnings Before 3nterest H Ta5Boo4 Ialue of Total Assets
.1 T$eor)e' o# Ca,)!al S!ruc!ure/
The capital structure concept has an important place in theory of financial management'
The term# capital structure# also 4nown as financial structure or financial plan or
leverage' The financial decision of the firm is of the tool for achieving firm2s ob9ective
of shareholders wealth ma5imi!ation' The term capital structure refers to the proportion
of debt and e7uity capital' Thus# the financial decision of a firm related to choice of
proportion of debt and e7uity to finance the investment re7uirement a proper balance
between ris4 and return to the shareholders' owever# it can be e5pected that if the
capital structure decision affects the total value of firm# a firm should selected such a
financing mi5# which ma5imi!ed the shareholders wealth' The optimal capital structure
and its implication are more noticeable' Argument between those who believe that is an
optimal structure for each firm and among those who believe in the absence of such
optimal capital structure for each firm and among those who believe in the absence of
such optimal capital structure began late *,(1s and there is yet no resolution of the
conflict ?Necon air# .11.@'
3n theory# capital structure can affect the value of the company by affecting either its
e5pected earnings or the cost of capital or both# which it is true that financing mi5 can
affect the total earning of firms as they are determined by the investment decision# it can
affect the share of earnings belonging to the shareholders' But the leverage cans large
influence the value of firm through the cost of capital'
+'*'* Modigliani)Miller ?MM@ Approach
The modern theory of capital structure began with the celebrated paper of Modigliani
and miller published in *,(0 ?arris and $aviv# *,,1@' 3t is an alternative approach to
the cost of capital which argues that# in the absence of corporate income ta5# the cost of
capital and the mar4et value of a concern is independent of the capital structure' This
approach is identical with the net operating income theory' The NE3 approach does not
0
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provide operational 9ustification for the irrelevance of the corporate capital structure#
while MM approach provide operational 9ustification for the constraint overall cost of
capital and# therefore# the total value of the company' The hypothesis gets support from
the presence of arbitrage in the capital mar4ets'
Arbitrage Process
Arbitrage is an act of buying assetssecurities in one mar4et ?at lower price@ and selling it
in another ?at a higher price@' "onse7uently# e7uilibrium is restored in the price of
securities in different mar4ets' ;ssentially# the arbitrage process is the purchase of
securities whose price are lower and sale of securities whose prices are higher #in related
mar4ets which are temporarily out of e7uilibrium' 3t is a balancing operation and implies
that securities cannot sell at different prices'
+'*'. Towards and Eptimal Financing Policy
Modigliani and Miller ?*,-@ argued that since the corporate ta5 allows the deduction of
interest payment in calculation ta5 able income# the more debt in the capital structure# the
lower the corporate ta5 liability# the higher after ta5 cash flows# and the greater the
mar4et value of the firm'
Miller ?*,//@ argues that ta5 advantage of debt is e5aggerated by considering the
corporate profit in solution from personal income ta5es' e argues that the corporate ta5
advantage of debt is offset by personal ta5 rules on investor debt income that are higher
than ta5 rate on investor e7uity income' 3n additional# Brennan and Schwat9?*,/0@ also
argue that the corporate ta5 advantage of debt is lower because the interest ta5 shield is
lost if the firm goes through ban4ruptcy and li7uidation' Furthermore# 8eAngelo and
Massulis?*,01@ argue that substitute ta5 shield# such as investment ta5 credit# also reduce
the corporate ta5 advantage of debt'
MMs original wor4# published in *,(0# assumed a !ero corporate ta5 rate' 3n *,-# they
published a second article that included corporate ta5 effects'
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Proposition 3
The value of levered firms is e7ual to the value of an unlevered firm in the same ris4
class plus the gain from leverage'
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?.11+@ states# in trade)off model# optimal capital structure can be visuali!ed as a trade)off
between the benefit of the debt ?the interest ta5 shelter@ and the cost of debt ?the cost of
financial distress or ban4ruptcy H agency costs@' The theory claims that the trade)off
between the losses and gains of borrowings# holding the firm assets and investment
constant# determines the optimal debt ratio' The firm substitute debt for e7uity or e7uity
for debt until the value of the firm is ma5imi!ed'
According to the trade off model is firm should set a target capital structure that balance
the costs and benefits of leverage# because such a structure will ma5imi!e the value of
the firm' Financial manager often thin4 of the firms debt e7uity decision as a trade)off
between interest ta5 shields and the cost of financial distress and agency costs' Ef course
there is controversy about how valuable interest ta5 shield are what 4inds of financial
troubles are most threatening' This trade off theory of capital structure recogni!es that
target debt ratio may vary from firm to firm' "ompanies with safe tangible assets and
plenty of ta5able income to ta5 shield ought to have high target debt ratio' Unprofitable
companies with ris4y# intangible assets ought to rely primarily on e7uity financing'
+'*'+ Pec4ing Erder Theory
The pec4ing order theory would indicate that the profitability of a firm affects its
financing decision' 3f it issues debt# this means that the firm has an investment
opportunity that e5ceeds its internally generated funds' So# changes in the capital
structure often serves as a signal to outsiders about the current situation of the firm as
well as the managerial e5pectations concerning future earnings' This is called the
signaling theory' The debt offering is believed to reveal information the management of
a firm is e5pecting about future cash flows if it will cover the debt costs' owever# the
ban4ruptcy fears still impact the signal and intensify the cost of this signal' Such
conclusions are supported by results of most empirical wor4s for e5ample# As7uith and
Mullins ?*,0-@ and ;c4bos ?*,0-@that documented a positive effect on stoc4 prices
when leverage increases while leverage decreasing announcement have a negative effect'
3n their pioneering wor4# Myers and Ma9luf ?*,0+@ showed that' 3f investors are less well
informed than current firm insider about the value of the firm2s assets# then e7uity may
be mispriced by the mar4et# if firms are re7uired to finance new pro9ects by issuing
e7uity' Under pricing may be so serve that new investors capture more than the NPI of
the new pro9ect# resulting in a net loss to e5isting shareholders' 3n this case the pro9ects
will be re9ected even if its NPI is positive 'this under investment can be avoided if the
**
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firm can finance the new pro9ect using a security that is not so severely undervalued by
the mar4et' For e5ample# internal fund and or ris4less debt involve no undervaluation#
and therefore# will be preferred to e7uity by firms in this situation' ;ven ?not too@ ris4y
debt will be preferred to e7uity'
Brennan and &ran ?*,0/@# Noe ?*,00@# and "onstantinides and :rundy ?*,0,@ cast doubt
on the pec4ing order theory' These papers enrich the set of financing choices that a firm
may ma4e when faced with the situation modeled by Myers and Ma9luf?*,0+@' They
concluded that firms do not necessarily have a preference for issuing straight debt over
e7uity and that the underinvestment problem can be resolved through signaling with the
rich set of financing options'
8onaldson ?*,-@ reaches a similar conclusion of resorting to e5ternal financing only if
financing cannot be generated internally which supports the pec4ing order theory of
capital structure' According to him capital structure choice depends on the firm2s
investments opportunities and its profitability' ighly profitable firms might be able to
finance their growth by using retained earnings and by maintaining a constant debt ratio'
3n contrast less profitable firms will be forced to resort to debt financing' amaifar et al'
?*,,+@ and Titman and
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A%?;@ KASE?;@ L AB?;@'
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self)interest)performances of theirs that create the costs' Managers have incentives to act
in their own interest which may result in actions against the owners2 interests'
The concept of agency costs into the area of capital structure management' The
contribution revolves around of concept that ensen labels free cash flowO' Free cash
flow is cash flow in e5cess of that re7uired to fund all pro9ects that have positive net
present values when discounted at the relevant cost of capital ?enson# *,0-@'
ensen then puts forth that substantial free cash flow can lead to misbehavior by manager
and poor decisions that are not in the best interest of the firm2s common stoc4 holders' 3n
the other words managers have an incentive to hold on to the free cash flow and have fun
with it# rather than using the cash in the form of higher cash dividend payments' This
leads to what ensen calls his control hypothesisO for debt creation' By levering up# the
firm2s shareholders will en9oy increase control over their management team' For
e5ample# if the firm issues new debt and uses the proceeds to retire the outstanding
common stoc4# then management is obligated to pay out cash to service the debt)this
simultaneously reduces the amount of free cash flow available to management with
which to have fun'
8ebt Financing and Agency Problems
3n agency cost models# financing decisions affect value of the firms because they
produce behavior of manager of the firms that affects profitability' Thus# ensen and
Mec4ing ?*,/-@ argue that higher leverage allows a firms manager to hold a larger
fraction of its common stoc4' This reduces agency problems by aligning the manager2s
interests more closely with the interests of other stoc4)holders' ensen ?*,0-@ argues that
leverage also enhances value by forcing the firms to payout resources that managers
might otherwise waste on bad investment' En the other hand# Fama and Miller ?*,/.@
and ensen and Mec4ling ?*,/-@ suggest that leverage increases the incentives ofstoc4holders to ma4e ris4 investment that shift wealth from bondholders but do not
ma5imi!e the combined wealth of security holders' Myers ?*,//@ suggests that leverage
can cause firms to under invest because the gains from investment are shared with the
firms e5isting ris4y bonds'
Agency theorists have long recogni!ed that the separation of ownership and control
common in most corporations creates conflicts of interest between a firm2s managers and
shareholders' These conflicts ?agency problems@ arise because managers have the
opportunity to use the assets of the firms in ways that benefit themselves personally but
*+
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decrease the wealth of the firm2s shareholders' ;5amples of this type of opportunistic
behavior by managers include consuming an e5cessive amount of pec4s# shrin4ing of
their responsibilities# and investing in negative net present value ?NPI@ pro9ects that
offer personal diversification benefits that firms managers' Amihud and %ev ?*,0*@
Friend and asbrouc4 ?*,00@ believe that some of these opportunistic behaviors results
because many managers have large proportions of their personal wealth invested in their
firm2s common stoc4 and in firms)specific human capital' Because their personal wealth
is heavily invested in their employers# these managers will lose a large part of the
personal wealth if their employer goes ban4rupt' $is4)averse managers may see4 to
mitigate this ris4 by acting to reduce the ban4ruptcy ris4 of the firm' Friend and
asbrouc4 ?*,00@ suggest that one way to accomplish this is to use less than the optimal
amount of debt in the firm2s capital structure' Further# the greater the proportion of
personal wealth is that managers have tied up in the form of common stoc4 and firm)
specific human capital and greater their incentive to minimi!e the use of debt in the
firm2s capital structures'
+'. $eview of Ma9or ;mpirical
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Some of the studies concentrated on testing MM hypothesis are presented in Table .'*'
Table .'*
Re*)e0 o# "a(or e",)r)cal 0ork'Studies Topic Major finding
MM
(1958)
Test of MM independent
hypothesis
Acceptance of MM hypothesis.
Dohaldson (191) De!t capacity theory The financing hierarchy si"ilar to pec#ing
orders (the i"plied rejection of MM
hypothesis).
$eston (19%) Test of MM hypothesis &ejection of MM hypothesis.
MM (19%) Test of ta' adantage on
leerage.
Acceptance of ta' adantage on leerage.
eterson (199) Test of relationship
!et*een !usiness ris#
and capital structure.
+apital structure aries *ith the !usiness
ris#.
,a"ada (19-) Test of MM hypothesis Accepted of MM hypothesis.
/lath and 0noe!er
(198%)
Test of MM hypothesis &ejection of MM hypothesis.
Marsh (198%) Test of fir" sie and
capital structure
ositie relationship !et*een fir" sie and
capital structure.
Auer!ach (1985) Test of fir" sie and
capital structure
ositie relationship !et*een fir" sie and
capital structure.
Tit"an and $essels
(1988)
Test of fir" sie and
capital structure
2egatie relationship !et*een fir" sie
and capital structure.
3o*e and Taylor
(1998)
Test of profita!ility and
leerage
ositie relationship !et*een profita!ility
and leerage.
owever# their studies have been critici!ed on many grounds' The unrealistic assumption
was critici!ed much' Beside# the selection of firm2s i'e' oils companies and electric
utilities display diverse characteristics which violate the assumption of same ris4 class
re7uired by both assumptions' The business toward irrelevance proposition by use of
same denominator in both dependent and independent variables has also been pointed
out by Baryes ?*,-@' Futher business may also occur from the e5clusion of other
variables in their regression model in their study'
The capital structure has been considerable number of empirical studies underta4en in
recent years# which e5amined the traditional capital structure determinants' Among the
traditional determinants of capital structure si!e# growth# profitability# ris4# assets
structure are the ma9or variables e5amined in these literatures' The ma9or recent studiesareD Bevan and 8onbold#.111C Pandey#.11*C "asser and olmes#.11C Both et al'.11*C
*-
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"asser and omes# .11C Frydenberg#.11C and leverage and si!e?BevanH
8onbold#.111C Pandey#.11*C Both et al'.11*C Antoniou et al'.11.C Fran4 H :oyal# .11+
and aung HSong#.11.@' Some of the studies concentrated on capital structure studies
are presented in table .'.'
Table .'.
$eview of ma9or studies during .111sStudies Sa"ple and
period
Major finding
4ean and
Don!old
()
156 non
financial listed
70 fir"s oer
the ti"e period
fro" 1991
199-.
ositie and highly significant relationship !et*een long ter"
de!t and the leel of gro*th opportunities in !oth 1991 and 199-.
Significant positie relationship !et*een co"pany sie and long
ter" de!t *hile significant negatie relationship !et*een
co"pany sie and short ter" !an#.
+asser
and
,ol"es
(%)
/inal sa"ple of
1555 Australian
fir"s for 1995
1998.
Assets structure profita!ility and gro*th are i"portant of capital
of capital structure and financing. rofita!ility "easures !y &:A
are negatie and significant.;ro*th is positie for all dependent
aria!les and significant for leerage shortter" leerage and
outside financing. +oefficients of ris# are positie for all capital
structure "easured assets structure and leerage relation found
to !e negatie.
/ryden!er
g (%)
165
2or*egian
"anufacturing
co"panies for
199.
The lag de!t leel has positie and significant influence on
todayndustry su!su"es a nu"!ers of s"aller
effects.
*/
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,aas and
peters
()
anel dataset
for non
goern"ent
o*ned fir"s in
ten central and
?astern
?uropean
countries
during 199s
rofita!ility and age are found to !e the "ost ro!ust deter"inants
of forget capital structure across countries. There is a significant
negatie relationship !et*een profita!ility for get leerage in the
total sa"ple regression as *ell as in out of 1 country
regression. The negatie coefficient point to infor"ation
asy""etries and su!stantial e'ternal financing preious in the
oerall regression as *ell as in all indiidual country regressions
as enters positiely and significantly.
The related studies that have been made into Nepalese enterprises and related as well as
relevant to this study have been reviewed under this sub)section of thesis' These ma9or
studies that have been done in the past by Nepalese scholars during the different timeperiods from *,0( to.11/ are presented into table .' and there are closely related to this
research wor4 about capital structure managements'
Table .'Ma9or Nepalese studies on capital structure
2epalesestudies
Topic Major findings
Shrestha
(1985)
Analysis of capital structure in
selected pu!lic enterprises.
@ery i"!alance and confusing capital structure.
0hanal(199)
+apital structure of industrialpu!lic enterprises.
+apital inest"ent and earning *ere notcorrelated de!t euity ratio and financial
perfor"ance also !ad thus "ost of ?s in loss.
Shrestha
(199%)
+apital structure selected and
listed pu!lic co"panies.
Most of the" hae no transparent capital structure
and these co"panies are adhoc deter"ined the
capital structure *ithout realistic para"eters.
Sherpa
(-)
+orporate capital structure
and its deter"inants a case of
2epal.
+apital structure is finding in relation to the
ariation of sa"ple sie study period and
"easure"ent of aria!les.
4hattarai
(-)
Deter"inants of capital
structure in 2epalese
eidences
+apital structure is depends on sa"ple sie
liuidity position profita!ility situation and attitudes
of shareholders.
Most of the studies appeared the finance literature has attempted to further e5plain the
capital structure by loo4ing into several determinates of capital structure under different
theoretical framewor4' Some of the recent studies have also focused on e5ploring the
lin4 between capital structure theory and the corporate practice' The review of several
relates studies indicate that there is no agreement in the results of these studies' For
*0
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e5ample# the tangibility or the collateral assets# si!e# profitability# growth# ris4 of the
firm# non)debt ta5 shields# li7uidity# industrial classification and many other firm related
variables are found to be significant in determining the capital structure of the firm'
owever# the finding regarding how these variables are related with and affects to capital
structure has remained as unresolved issues' These variables have been found important
in many conte5ts such as in the conte5t of USA# ;urope# Australia# apan and some other
Asian countries' The similar findings appeared also in the 3ndian conte5t' But# the
direction and significance of impact these variables on leverage were found varied across
firm# industry and country' Few studies in the Nepalese conte5t also find more or less the
similar contradictory results as in the studies of other countries' Beside# the review has
also revealed many other variables as the li4ely influential variables in the determination
of capital structure' The review of studies reveals additional 7ualitative factors such as
financial fle5ibility# credit rating# earning and cash flow volatility# insufficient internal
founds among others as factors influencing the capital structure decision' Therefore to
conclude the capital structure issue has been remained highly contentions in the field of
finance' The determinants of capital structure vary greatly across different firms'
There are the several factors that determine the capital structure of the firms' These
factors are collateral value of assets# growth opportunities# profitability# firm si!e# and
volatility of income and non debt ta5 shield that includes depreciation# investment ta5
credit' The empirical studies have shown that the leverage is positively related with
collateral value of assets and si!e of the firm whereasC it is negatively related with
growth opportunities# volatility# profitability and non debt ta5 shield'
. Re'earc$ Me!$odolog2+
The basic ob9ectives of this study as described in the introductory chapter are to e5amine
the management of capital structure of Manufacturing 3ndustries of Nepal' To achieve
the above )mentioned ob9ective# appropriate research methodology has to be followed'
Therefore in this study# focuses will be made on research design# nature and sources of
data# selection of enterprises and method of analysis'
.1 Re'earc$ De')gn
*,
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The analysis of this study will be based on certain research design' $esearch design
means definite procedure and techni7ue which guides in studying profound ways for
research viability' So selection of appropriate research design is necessary to meet the
study ob9ectives of any research' 3t emphasi!es on descriptive and analytical study of the
collected data on profit and loss account and balance sheet over a period of time and it
gives suggestion on the improvement of the capital structure' So this study will be based
on description and analytical research design'
A research design is the arrangement of conditions for collection and analysis of data in
a manner that aims to combine relevance to the research purpose with economy in
procedure'
Using 7uantities and 7ualitative analysis method will be carried out in this study'
Mostly# the secondary data will be used for analysis' The discussion and personal
interview with concerned employees of the industry will not be used for 7ualitative
analysis'
$esearch may be defined as the ob9ectives and systematic methods of finding solution to
a problem i'e' systematic collection# recording# analysis# interpretation and reporting of
information about various facts of a phenomenon under study' 3n other word# research
refers to the systematic method consisting of enunciating the problem# collecting factors
of data# analy!ing the facts critically and reaching conclusion based on them'
ence# the research design adopted in this study is descriptive type on it is based on fact
finding operation surveys'
. Na!ure and Source' o# Da!a
This study will be made mainly from the secondary data analysis as well as primary tools
of data collection and analysis as per the research need to fulfillment of the main
ob9ective of research' The necessary data and information will be collected from
different sources covering a period of si5 year .11/ to .1*.' 3t will e5clude ban4#
finance company and other financial institutions from the sample' This study will not
cover each of the Nepalese manufacturing industries because of the data problem' All
data in this study will be compiled from the financial statements and annual reports of
the industries'
Effice of the Accountant brings out the official annual reports# which contain the profit
and loss account# balance sheets of the manufacturing company of Nepal' Similarly#
some of the manufacturing organi!ations listed in stoc4 e5change submit their annual
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financial report to the Securities Board of Nepal ?S;BEN@' These organi!ations compile
these data in their own format' The necessary data on capital structure and other related
variables used in this study will be collected mostly from these reports' The balance
sheet will give information of debt and e7uity' Similarly# the profit and loss account will
give data on trading sales and e5penses' The annual report will also give the brea4down
of these items'
Secondary data which will be obtained through annual reports of sample firms contain
the annual report of the auditor general office ?A:E@ .11/ to .1*.' Annual report of
concerned industries and security e5change board of Nepal will be the ma9or sources for
secondary data'
.& Po,ula!)on 3 Sa",le
Enly ( manufacturing companies will be selected as sample' Much li4e in other capital
structure research# ban4s and financial companies will be e5cluded in the sample' The
manufacturing companies will thus constitute the population' The random sampling
techni7ue will be adopted in selecting the companies as sample' The period covered for
the study will be .11/ to .1*. but may vary depending on the availability of data'
. Da!a Pre'en!a!)on 3 Me!$od o# Anal2')'
Presentation and analysis of data is one of the important part of the research wor4' The
collected raw data will be first presented in systematic manner in tabular form and then
will be analy!ed by applying different financial and statistical tools to achieve the
research ob9ectives' The tools that will be applied will be)
1. F)nanc)al Anal2')'+The ma9or tool employed for the analysis of this study
will be the ratio analysis that established the 7uantitative or numerical relationship
between two variables for the financial statements' Some of the financial ratios that will
be calculated areC Profitability# %i7uidity# :rowth Epportunity# Non)8ebt Ta5)Shield#
Total %everage# %ong Term %everage# Short Term %everage etc'
. S!a!)'!)cal Anal2')'+Beside financial analysis# the statistical tools will also be
used in this study' Statistical tools are the important tools to analy!e the data' There are
various tools for the analysis of data such as mean# standard deviation# regression
analysis# correlation analysis# various types of tests etc' The convenient statistical tools
will be used in this thesis study'
.*
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Re#erence'
$ishi $a9 :autam H &iran Thapa# ?.110@ "apital Structure Management# Asmita
Publication# Pn'.,()*-
A!aya B' Sthapit# ?.1*1@ Statistical Methods# Buddha Publication'
Shyam)Sunder# %' and S'"' Myers# *,,,# Testing Static Tradeoff against Pec4ing
Erder Models of "apital Structure#O Journal of Financial Economics (*# .*,)
.++'
F' Modigliani and M'' Miller# The "ost of "apital# "orporation Finance and the
Theory of 3nvestmentO American ;conimic $eview ?une *,(0@ Pn .-*).,/'
Michael Pinegar and %isa
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Shrestha# M'&' ?*,0(@' Analysis of capital structure in selected public enterprises'
The Nepalese ournal of public Administration# *-?.@# +.)('
APPENDI4D) 3
5UESTIONNAIRES
Name of $espondentD '''''''''''''QQQQQQQQQQQQQQQQQQ AgeD QQ
*' 8o you have debt capital in your firm=
a' Res b' No
.' 3s there any relationship between used debt capital and overall cost of capital of a
firm=
a' Res b' No
'
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c' Straight 8ebt
d' "onvertible 8ebt
e' Straight Preferred Stoc4
f' "onvertible Preferred Stoc4
/' Appro5imately what percent of the time would you estimate that your form2s
outstanding securities are priced fairly by the mar4et=
a' More than 01 percent of the time
b' Between (1 to 01 percent of the time
c' %ess than (1 percent of the time
0' :iven an attractive new growth opportunity that could not be ta4en without departing
from your target capital structure or financing hierarchy# what action do you suggest
to your firm most li4ely to ta4e=
a' To far go the growth opportunity
b' To deviate from the target capital structure or financing hierarchy
c' To cut the dividend
d' To sell off the other assets
,'
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