Impact of Capital Structure on Share Holder Wealth in India

The manner of worldwide liberalization and globalization of financial regulations has multiplied funding possibilities, broadened financing alternatives and, primarily, expanded reliance on capital markets. Beginning a new enterprise calls for capital, but expanding a company calls for extra capital. The desired budget can come in many different bureaucracy from many specific assets an agency can use both debt and fairness to fund its belongings. The best choice is a mixture of debt and equity. One of the most complicated troubles dealing with financial managers is the relationship among the capital structure, the aggregate of debt and equity investment, and the inventory fee. It is widely known that minimizing the cost of capital maximizes the cost of a corporation. Therefore, one of the major goals of strategic management today is to discover the premiere capital shape. A most fulfilling capital shape exists best whilst debt and equity are combined to reduce the price of capital and increase the enterprise's profitability. The management of the business enterprise itself has to shape the capital shape to maximise shareholder fee, and that selection is very crucial.

Funding decisions for a particular company to get profit is a crucial decision will progress in the future. One of the most perplexing issues faced by finance managers is to know about the effect of capital structure on the profitability of company. Many studies have been carried out to examine the effect of capital structure on the profitability of firms, but most of them belong to other parts of the world, and only few studies have been conducted in India. Changes in the capital structure and financial performance are of central importance in assessing the overall returns of companies and, more importantly, in knowing whether stock returns are sensitive to changes in the capital structure. In order to discuss this impact, theoretical background of the different sources which related to the impact of capital structure on share prices; discussed in this paper.  In this paper an attempt has been made so as to ascertain the impact of capital structure on the profitability of a company. Based on the various data, it was concluded that the change in capital structure and company performance had an impact on the stock prices.