Impact Of Financial Crisis On The Capital Structure Decision Making Of Essay

Impact Of Financial Crisis On The Capital Structure Decision Making Of The Firm - Essay ExampleThe central discussion has developed the reference from the literature related to the capital structure theories and the brief about the fiscal crisis of late 2000s. The discussion in like manner addresses the firms response to the pecuniary crisis by adjusting mix of the capital structure. Therefore, for clear assessment along with overall global assessment, capital structure adjustments of Tesco and Dell have been discussed in the report. The report also has presented alignment of the responses of the capital structures with theories. FINANCIAL CRISIS Financial crisis have always been the dominant factor for determining trends and practices in the economic scenario. A monetary crisis traces the reasoning from the ebullient loans such as sub-prime mortgages as well as financial instrument of debt derived from such loans (Mizen 2008). Crisis originated from US in late 2000s spread acro ss Europe and then(prenominal) to world owing to the benefit of diversification that businesses attempted to gain from spreading risk across local and international markets (Fosberg, 2010). First strong hit from financial crisis and its intensity was revealed in late 2007 upon the Bear Stearns declaration about evaporation of the value of major assets held by Bear Stearnss hedge funds. ... ct of financial crisis then resulted in continuity as Fannie Mae and Freddie Mac declared bankruptcy in third quarter beginning of 2008 followed by government takeover. Similar calendar month also witnessed another major shock from financial crisis as Lehman Brothers declared bankrupt and immediately next day another giant AIG ended up receiving $85 billion credit facility from NY Fed to sustain. Efforts to sustain the steep fall of the financial stability of bank and institutions Troubled Asset Relief computer programme (TARP) was launched (Fosberg, 2010). TARP performance has also been bringin g losses to treasury as TARP invested US $25 million in the bank while managed to stimulate only US $13.5 million on sale of preferred stock of invested in financial institutions. TARP is also actively making efforts in finis down its program for banks though it still held the share for 199 banks (Sparshott, 2013). Being international firms, all these apart from impact on local financial market had hurtful impact on the international financial markets and hence international firms locally. Estimation of the reasons of the financial crisis, other than the core reason of subprime loans backed by subprime mortgages, has been found many. much(prenominal) as among various factors discussed for fact has been the claim to the performance of respective roles of asymmetric information etc (Miglo, 2010). Further, another core factor along with dominant role of procedure problem mounted the issue. Agency problems role was initially ignored to be addressed for the level of attention requir ed (Miglo, 2010). In addition to these, role of already stressed factors such as taxes and bankruptcy cost in capital structure theories were receiving less attention in operational practices and hence contributed to the financial