Sermaye maliyeti ve optimal sermaye yapısı
The cost of capital and capital structure (capital cost)
- Tez No: 106707
- Danışmanlar: Y.DOÇ.DR. SAADET TANTAN
- Tez Türü: Yüksek Lisans
- Konular: Ekonomi, Economics
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 2001
- Dil: Türkçe
- Üniversite: Marmara Üniversitesi
- Enstitü: Bankacılık ve Sigortacılık Enstitüsü
- Ana Bilim Dalı: Bankacılık Ana Bilim Dalı
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: 102
Özet
Özet yok.
Özet (Çeviri)
The capital concept is one of the crucial and indispensable constituents of economics. As a result of the changes in today's economical activities experienced under the effect of globalisation, it has gradually become difficult to control the capital, and one of the hardest and significant activities to evaluate the capital cost. If certainty conditions prevailed in business life, it would not be important how the business funds were financed; by debts (financial liabilities), net worths or whatsoever. Nevertheless, due to the current uncertainty, financing has become more intricate and evaluation of capital cost has become more challenging. The weighted average of the profits demanded by debt and net worth investors that form the capital structure of the company constitutes the capital cost of the business. This cost is the expected profit rate that will be demanded by the investors, from the portfolio which contains all circulating securities of the company. Capital cost is the income provided for the fundholders, intermediating agencies and state, in return for debts and long-term funds Capital cost is an essential issue for financial administrators. The reason is that one of the important tasks of financial administrators is to maximise the market value of the company, in other terms, to minimise the capital costs. Minimising the capital cost is dependent only upon the correct capital forecasts of financial administrators and their knowledge on how to reduce the costs. Even more, many decisions taken by financial administrators with regard to the future of the business involves proper forecasting of capital cost. Also, companies increase their market value and thus reduce the caçlta[Pa“^”cost by means of several adjustments between the debts and net wooti itema that constitute their capital structure. Therefore, capital cost becomesa significant criteria when making a selection between alternative capital structures. After the costs of components (debts, preferred stocks, common stocks, etc) that constitute the capital structure are calculated separately, the weights of such costs are calculated on the basis of a standard and weighted average of the capital is found out. One of the methods of reducing weighted average capital costs is to raise the debts. Only in this case the creditors request higher interest rates, and the shareholders request higher profit as the risk involved in the stocks increases. The mistakes calculating the capital cost may have adverse influences on the economic growth and also upset the resource distribution activity, and thus breed outcomes far from optimal resource distribution. DECISIONS ON CAPITAL STRUCTURE Capital structure indicates the distribution of the total capital requirements of the company between liabilities (debts) and net worths. When the administrators establish the capital structure, they have to decide to what extent and which financing resources they can make use of. The companies aim to sustain within this optimal cost limit when establishing such structure. The companies pYefer incurring debts during their early years of establishment, and net worths financing in subsequent periods; generally the cost of funds provided from debts is less than the cost of funds provided from net worths. However, overdebting increases the risk involved. There are four approaches as to whether any change in the fipfiltcial“ structure of a business affects the market value and average capital £|sf of a - business.According to net income approach which extremely reckons with the effects of lever factor, a business can reduce its capital cost and increase its market value by means of alterations in its capital structure. But, the company's running into excessive debts brings extreme interest rates and therefore liquidity scarcity in the companies. Net activities income approach, which is the opposite of net income approach puts forward that it is not possible to reduce the average capital cost and increase the market value by making alterations in the capital structure. Therefore, according to this point of view, average capital cost is constant for all capital structures. The other approach, which is the conventional approach, is based on the companies' undertaking debts to a certain extent and thus maintaining the capital cost at an optimal level. One of the foremost studies carried out regarding capital structure is by Franco Modigliani and Morton Miller. Modigliani and Miller have published their studies on capital structure as an article in 1958 and 1963 and demonstrated that they have made basic and significant researches on this subject. According to this theory, the whole- price of a company is independent from its capital structure. Therefore, the extent of using debts or owning stocks does not have any relation with the capital structure of a business. They have formed some hypothesis regarding MM approaches. According to MM, market value of a business is equal to the reduction of the future money flow by discount rate established proportionally with the risk category the said company is, involved in. In the same way, according to MM, investment and financing decisions are independent of each other and only the investment decisions affect the price of a business in an ideal world where taxes, transaction expenses and other financial problems do not take place.^ Finally, as financial risk due to debts of a company will cause the company ”to.,'.. require a higher profit rate from his shareholders, the initial advantage ofundertaking debts, which is seemingly inexpensive, expires with the increase in equity cost. As stated by MM, the decisions taken by the company about capital cost have no influence on the market value of the company. The influencing factor is the preferences of the individuals. One of the foremost views of MM is on arbitrage. In other words, if an asset with the same qualities, has different prices in different markets, the arbitragers, by buying such asset from the lower market and selling it in the higher market both earn profit and bring the price of the asset to the same level in different markets. MM have developed two propositions with regard to capital structure in their articles published in 1958 and have studied the capital structure in a world where there are excellent capital markets and none taxes. The first proposition of MM suggests that in the capital markets where complete competition circumstances prevail, the expected revenues of the companies having the same level of risk are equal and their current flow will always maintain at the same level, and therefore, the correlation between the market value of the company and capital cost has been demonstrated with the assumption that no growth will be witnessed in the business. According to the second proposition of MM, due to the fact that the increased use of debts by the company causes increase in the financing risks, the equity cost will also rise. Subsequently, MM has included institutional taxation to their studies and defended that by maximising the financing of the company via debts, its market value can be increased. As the interest of the debt (liability) can be deducted from the taxes, they reached to the conclusion that the operating incomes of a w company in debt, and therefore, the market value of the company increjŞşeîsV ' *, \, However, one of the reasons refuting this hypothesis in real life is the 'income'" '.,taxes. Later, Miller incorporated income tax into his studies and demonstrated that the income tax reduces the advantage of lever system, the running incomes of the investors and the market value of the said company drop with the influence of income tax. MM approach has been subject to severe criticisms which particularly maintained that such approach is not realistic. According to MM, capital structure has no significance in the setting of market value of a company. Yet, the other companies consider the capital structure essential and spend effort and time. Other important points that receive criticisms are hypothesis like running of capital market entirely under competitive circumstances, the rationalisation of all investors and lack of bankruptcy costs. In this study, primarily the capital structure set out by MM, which has an important place in financing, has been examined in a world where there are excellent capital markets and none taxes. However, it has been witnessed that MM hypothesis have been subject to several criticisms for not being realistic in the real world. Today companies may have different forms of capital structure. Still, one of our objectives is to enable the profit to be distributed among the bond and share holders, by reducing the share of the state on the pre-interest and pre fixing profit (EBIT) of the business, the reduction of the state's share of taxes is only possible by the companies' incurring debts. As a result of the debts of a company, the due interest can be deducted from the tax. The reduction of tax payments increases the cash to be paid to bond and stock holders. This increases the market value of the existing securities of the company. In this case, we can say that the market value of the company benefiting from the lever system is far higher than the company which is not. However, the permanent raise in the lever does not always have to increase the price of the company. The reason is that it is not possible for a company to be indebted at 100%. There are other difficulties on the rnarket apart from the tax. One of them, which is financial difficulties, arises when the business is unable to meet his financial liabilities. As a result of extreme debt rates, the company may not be able to pay off his payments which are due to the bond holders. As the lever rises, the company pays a large amount of his profits to the creditors and a smaller amount to the shareholders due to the fact that the creditors bear the first right of request on operating profits and net worths of the company, therefore they have more secure requests. On the contrary, the shareholders are incurred to more risk as the debts increase. Although debiting has tax advantages for the business, it is preferred that businesses which have higher debts in their capital structure are such businesses that are safe and stabilised and that bear growth potential due to the reason that overdebting brings also financial difficulties. It is required that a business under risk or financial difficulties ought not to go under deep debts. Moreover, as a result of extreme debts, the business concentrate his operating risks on common stock holders. Consequently, when establishing capital structures, risk and profit are two crucial criteria. Overdebting brings too much risk on the business, but enables the expected profit to be higher. As a result of debt liabilities, the companies have to select between the obtained tax savings and the effects of probable increase in the financial difficulty.
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