Literature Review

Submitted to:

Kashif Ahmad

Submitted by:
Umar farooq shah (1535127)
Muhammad Sheryar
Waqar khan khattak

Impact of Capital Structure on Firms

Fianacial Performance and Shareholders
Wealth: Textile Sector of Pakistan
(Literature Review)
The diverse organization having the distinctive capital structure that they feel suitable for them
having the diverse debt to equity mix ratio. The essential objective of each organization is to set
ideal capital structure that build the organizations esteem as far as execution and expanding the
share value and having the base minimum of capital that we need to pay to our borrowers from
which we gave our debt and return that ought to provide for our equity holders.
The fundamental meaning of ideal capital structure is setting the most suitable mix of equity and
debt financing for the organizations that can contribute in the general performance of the firm
and its productivity by diminishing the cost of capital typically referredto as Weighted Average
Cost of Capital (WACC).
Gupta (n.d.) the company's capital structure which builds the shareholders wealth and decreases
the company's cost of capital is referred to ideal capital structure of the firm. The essential
objective of ideal capital structure is to diminish the organizations cost of capital and build the
shareholders wealth and firms overall performance.
Saleem (2013) communicated that the most ideal decision of debt and equity share that will
expand the shareholder's wealth is referred to as capital structure of the firm. In above given
articulation the reason for setting the capital structure is characterized as the arrangement of
equity and debt combination that will expand the shareholders wealth. On the off chance that you
are given the preference to the shareholders of the firm by giving them the higher returns you are
more focused on the shareholders wealth amplification that likewise brings about expanding the

by and large organizations worth in the business sector because of the goodwill made in the
brains of their investor that are shareholders.
By utilizing a portion of the writing composed by diverse analysts to assess the impact of capital
structure of the firm on Firm's Financial Performance and Shareholder's wealth we will attempt
to inferring the outcomes either capital structure of a firm positively or negatively influence the
firmsfinancial performance and shareholder's wealth.
Saleem (2013) uncovered that the some expert of corporate account trusted that capital structure
of a firm can expand company's overall worth with the offer of minimizing its some assistance
with costing of capital which is exceptionally questionable issue examined in corporate money
hypothesis about capital structure to assess its effect on by and large company's reasonable
worth. In above given declaration we can deduction the outcome as a portion of the corporate
fund examiners feel that with the end goal of expanding company's worth in the business sector
the organizations need to minimize their cost of capital and given the less comes back to the
borrowers from which they back their debt.
San and Heng (2011) uncovered that decline in WACC results in expanding the evaluation of the
firm that is characterized as ideal capital structure. There is no a particular recipe or hypothesis
still intended to decisively characterize the ideal structure of the firm that build the company's
overall worth after lots of inquires about that have led on the idea of ideal capital structure.
The procedure of minimizing the weighted-average cost of capital (WACC) that will amplify the
firms quality is known as ideal Capital structure determination. There have been boundless looks
into done in respect of planning the hypothesis that just as gives the Optimal Capital Structure of
the considerable number of firms yet did not succeeded yet.
Saleem (2013) uncovered that by keeping up the harmony between advantages of obligation and
expense of obligation connected with that advantage that will brings about ideal capital structure
as indicated in terms of professional career off hypothesis. With the end goal of lessening office
cost and pick up duty shield firms financed its operations through obligation financing. The
advantage from obligation financing is that the organizations can pick up tax break and lessening
the office cost by not giving the proprietorship right to the value holders on the off chance that
they go for the value financing as opposed to obligation financing.

With a specific end goal to investigate the impact of Capital structure on company's monetary
execution we need to look at the arrival on resources of that specific firm. The organizations
reason for existing is to choose the kind of capital structure that expand their profits on resources
and in an outcome build the benefit of the firm.
Li and Cui (2003) infers that to expand the value of value for shareholders supervisors settle on
choices of financing their operations as per capital structure hypotheses. The essential objective
of the administrators is to boost the estimation of the firm by accomplishing higher benefits those
outcomes in the augmentation of shareholders riches so we can say that capital structure
generously influence the shareholder's riches.
San and Heng (2011) uncovered that there is some sort of relationship between association's
monetary execution and capital structure of the firm either positive or negative.
Velnampy and Niresh (2012) uncovered that benefit of the association's is subordinate upon the
capital structure choices of the firm having the distinctive obligation and value blend that can
appropriate to expand the productivity of the firm. The imperative piece of the company's money
related procedure is to prosperous decision and utilization of its capital. The relationship between
association's capital structure and the company's gainfulness is extremely noteworthy as the
productivity of the firm can be specifically influenced by the capital structure choices of the
organizations. Choice about firms Capital structure is critical component in the organizations
general technique.
As indicated by Skopljak and Luo (2012) Agency cost hypothesis characterizes that distinction
of the objectives of Directors and the proprietors of the organizations can influence the general
execution of the firm as far as its fairly estimated worth and productivity.
Chowdhury and Chowdhury (2010) communicated that so as to build the shareholder's riches the
suitable determination of capital structure of the firm in the middle of obligation and value mix
assumes the crucial part. With a specific end goal to characterize company's worth by executing
the procedure of future money streams marking down method, WACC is utilized. The motivation
behind selecting the right capital structure of the organizations is to boost the association's worth,
productivity and shareholders riches.

Soumadi and Hayajneh (n.d.) uncovered that in the writing written in corporate money the idea
of relationship between company's execution and capital structure is the most easily proven
wrong idea that additionally given the solid contemplations by monetary business analysts of
both budgetary and non-monetary firms.
By taking a gander at all above examined explores we can reason that the relationship between
the association's capital structure and the organizations general execution, benefit and
shareholders riches is available. The organizations ought to search for the ideal capital structure
that minimize the WACC and expand the association's quality and their offer cost to amplify
shareholders riches.
To gauge the budgetary execution of the firm we can figure the money related proportion
identified with the wage proclamation and monetary record of the organizations and attempt to
dissect the effect of capital structure of the firm on these monetary proportions that unfavorably
or decidedly affect the firms performance.
Reference:
Saleem, F ., &Rafique, B. (2013). The determination of capital structure of oil and gas firms
listed on Karachi stock exchange in Pakistan. Interdisciplinary journal of contemporary
research in business. 9. 225-235. http://journal-archieves27.webs.com/225-235.pdf
Lim, T .C . , Chai, R . , Zhao, D ., & Lim, X .Y. (2012). Capital structure and political
patronage: Evidence from China. American journal business and management. 1 (4) 177-182.
Umar, M . , Tanveer, Z . , Aslam, S ., &Sajid, M. (2012). Impact of capital structure on firms
financial performance: Evidence from Pakistan. Research journal of finance and accounting. 3
(9). 1-12.p.
https://www.google.com.pk/?gws_rd=cr&ei=L1pWU-v_Eaez0QWp24GYBg#q=Capital+Str
ucture+and+Corporate+Performance+of+Malaysian+Construction+Sector%3A+International
+Journal+of+Humanities+and+Social+Science.%2C+1+(2)%3A+28-36.+
Gupta, P . , Srivastava, A ., & Sharma, D. (n.d). Capital Structure and Financial Performance:
Evidence from India. P.2. http://www.wbiconpro.com/319-Gupta.pdf
San, O .T ., &Heng, T .B. (2011). Capital Structure and Corporate Performance of Malaysian
Construction Sector.International Journal of Humanities and Social Science.1 (2).28-36.

Li, H ., & Cui, L. (2003). Empirical Study of Capital Structure on Agency Costs in Chinese
Listed Firms.Nature and Science.1 (1).12-20.
Velnampy, T . , &Niresh, J .A. (2012). The Relationship between Capital Structure &
Profitability.Global Journal of Management and Business Research.12 (13). 1.
http://www.journalofbusiness.org/index.php/GJMBR/article/viewFile/766/695
Skopljak, V ., &Luo, R .H. (2012). Capital Structure and Firm Performance in the Financial
Sector: Evidence from Australi. Asian Journal of Finance & Accounting.4 (1).278-298.
http://dx.doi.org/10.5296/ajfa.v4i1.1319
Chowdhury, A ., &Chowdhury, S .P. (2010). Impact of capital structure on firms value:
Evidence from Bangladesh. Business and Economic Horizons., 3 (3). 111-122.
http://dx.doi.org/10.15208/beh.2010.32
Soumadi, M .M ., &Hayajneh, O .S. (n.d). CAPITAL STRUCTURE AND CORPORATE
PERFORMANCE EMPIRICAL STUDY ON THE PUBLIC JORDANIAN
SHAREHOLDINGS FIRMS LISTED IN THE AMMAN STOCK MARKET. European
Scientific Journal.8 (22).173-189.
Arifeen, S et al. (2011). FINANCIAL STATEMENTS ANALYSIS OF COMPANIES
(NON-FINANCIAL) LISTED AT KARACHI STOCK EXCHANGE: State Bank of Pakistan.
p.36. http://www.sbp.org.pk/departments/stats/bsa.pdf