Abstract:
Value of firm’s Capital Structure has always been burning issue. From management
perspective capital structure is a very healthy mean to control the cost of capital. Different
ways of financing its assets can be adopted by a company and the key objective is to attain the optimal capital structure whose minimum cost of capital can be reached. Miller and Modigliani(1958) irrelevance theory proposes that the value of firm is free of its capital
structure under certain suppositions. Different aspects of capital structure have been
explained by these theories but on the other side empirical evidences are not every time
backing these theories. Some professionals in finance believe that with the increase in
leverage the market value of firm increases.This mainly shows that firm having more
percentage of debt financing attains the optimal capital structure but surely this statement is rejected by other financial professionals. So these theories lead to controversy that what is the optimal capital structure point. Too much of study has been done on this topic in developed countries and work of the research is to check the potential determinants in a different market. Moreover study that also the conclusions drawn from the several theoretical and empirical researches are effective for developing markets like Pakistan.
