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Capital Structure Decisions: Evaluating Risk and Uncertainty

Book Description

Inside the risk management and corporate governance issues behind capital structure decisions

Practical ways of determining capital structures have always been mysterious and riddled with risks and uncertainties. Dynamic paradigm shifts and the multi-dimensional operations of firms further complicate the situation. Financial leaders are under constant pressure to outdo their competitors, but how to do so is not always clear. Capital Structure Decisions offers an introduction to corporate finance, and provides valuable insights into the decision-making processes that face the CEOs and CFOs of organizations in dynamic multi-objective environments.

Exploring the various models and techniques used to understand the capital structure of an organization, as well as the products and means available for financing these structures, the book covers how to develop a goal programming model to enable organization leaders to make better capital structure decisions. Incorporating international case studies to explain various financial models and to illustrate ways that capital structure choices determine their success, Capital Structure Decisions looks at existing models and the development of a new goal-programming model for capital structures that is capable of handling multiple objectives, with an emphasis throughout on mitigating risk.

  • Helps financial leaders understand corporate finance and the decision-making processes involved in understanding and developing capital structure

  • Includes case studies from around the world that explain key financial models

  • Emphasizes ways to minimize risk when it comes to working with capital structures

There are a number of criteria that financial leaders need to consider before making any major capital investment decision. Capital Structure Decisions analyzes the various risk management and corporate governance issues to be considered by any diligent CEO/CFO before approving a project.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. Chapter One: The CFO’s Role in the New Global Economy
    1. The Decision-Making Process
    2. Goals of a CFO’s Team
    3. A CFO’s Constraints
    4. Recent Issues in Capital Structure Decision Making
    5. Summary
  9. Chapter Two: Time Dimensions of Capital Structure Decisions
    1. Sources of Funds
    2. Cost of Funds
    3. Cost of Loan Funds or Bonds
    4. Summary
  10. Chapter Three: Predicting and Evaluating a Firm’s Performance
    1. Income Statement
    2. Balance Sheet
    3. Cash Flow Statement
    4. Funds Flow Statement
    5. Significant Accounting Policies and Notes to Account
    6. Ratio Analysis
    7. Predicting Bankruptcy
    8. Summary
  11. Chapter Four: Maximising Value with Capital Structure Decisions
    1. Value-Based Management Framework
    2. Valuations
    3. Variations in Cost of Capital
    4. Formula-Based Approaches to Valuation
    5. Summary
  12. Chapter Five: Risk Dimensions to Capital Choices
    1. Capital Sources
    2. Types of Risk and Their Measures
    3. Capital Choices and Risk Management
    4. Requirement for Equity Capital and Risk
    5. Framework for Risk Management
    6. Summary
  13. Chapter Six: Role of Off–Balance Sheet Capital
    1. Fixed-Asset Financing
    2. Working Capital Financing Options
    3. Effects on the Balance Sheet
    4. Summary
  14. Chapter Seven: Innovations in Capital Structure
    1. Forms of Financing
    2. Financial Innovations
    3. Summary
  15. Chapter Eight: Global Markets and Efficiencies in Capital Structure Decisions
    1. Reasons for International Financing
    2. International Bond Market
    3. International Equity Market
    4. Bank Loans
    5. Financial Structure for a Global Firm
    6. Doing Business in Select Countries: Political, Legal, Social, and Financial Aspects
    7. Summary
  16. Chapter Nine: Theoretical Frameworks for Capital Structure Decision Making
    1. Review and Synthesis of Theoretical Frameworks
    2. Capital Structure Puzzles
    3. Summary
  17. Chapter Ten: Strategic Determinants of Sources of Capital
    1. Strategic Considerations
    2. Mission and Vision
    3. Strategic Targets and Objectives
    4. Devising Strategic Capital
    5. Motives for Issuing Equity
    6. Motives for Issuing Debt
    7. Motives for Issuing Foreign Debt
    8. Motives for Issuing Convertibles
    9. Factors Motivating Debt Maturities
    10. Summary
  18. Chapter Eleven: Economy-Driven Capital Structure Practises
    1. Understanding Capital Structure Practises
    2. A Firm’s Access to Capital and Business
    3. Capital Structure Decisions in Emerging Economies
    4. Financial Structures Linked to Global Development Indicators
    5. Present Global Markets and Capital Choices
    6. Summary
  19. Chapter Twelve: The Role of a Decision Maker in Capital Structure Decisions
    1. Revisiting the Decision-Making Process
    2. The Goals of a Decision Maker
    3. A Decision Maker’s Characteristics and Attributes Matter
    4. Summary
  20. Chapter Thirteen: Behavioural Evidence of a CFO’s Decision-Making Process
    1. The CFO’s Role in Indian Industry
    2. CFOs’ Working Attributes for Capital Structure Decisions in India
    3. CFOs’ Operational Aspects in the United States
    4. Summary
  21. Chapter Fourteen: A Multiple-Objective Framework for Capital Structure Decisions
    1. Evaluation of Mathematical Programming Techniques
    2. Evaluation Techniques under Uncertainty
    3. Model Specifications for Capital Structure Decision Making
    4. Application of Goal-Programming Models for Capital Structure Decisions
    5. Data Compilation for Model Development
    6. Capital Structure Practises in India
    7. Goal-Programming Model for Capital Structure Decisions Using Accounting Proxies
    8. Case 1: α1 Co. (Alpha One Company) in the Agriculture Industry
    9. Summary
  22. References
  23. About the Author
  24. Index