CS Mgmt of Mfg Indst-Proposal

8/12/2019 CS Mgmt of Mfg Indst-Proposal

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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

.1


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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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CS Mgmt of Mfg Indst-Proposal

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