Deviation from the Target Capital Structure and Acquisition Choices

Abstract

This paper aims to discuss how managers consider capital structure variations when deciding which purchases to make. Compared to their debt ratio, highly leveraged companies are less likely to decide to buy cash. These companies purchase unimportant goals at a bargain. The capital structures of over-leveraged companies are changed by their managers in anticipation of a merger or acquisition. The methodology entails the approach to the research, and the right debt-to-capital ratio was found by using Compustat and the Center for Research on Security Prices (CRSP). These data will be used in assessing the estimation model and various regression and correlation analyses. Finally, they look for acquisitions that will add the most value. This research examines the relationship between capital structure and investment choices in the context of financial frictions, highlighting the importance of capital structure in investment choices.