Impact of Capital Structure & Cost of Capital on Shareholders' Wealth Maximization-A Study of BSE Listed Companies in India

Abstract

This paper aims to evaluate the optimum capital structure, cost of capital and to analyze the impact of capital structure and cost of capital on shareholders' wealth maximization. The study is empirical in nature. For the purpose of the study we have selected 12 highest net worth companies listed on BSE stock exchange. This study is based on secondary data and data have been collected from B.S.E (website) and Money Control.Com (website). Arithmetical formulae have been applied for calculating capital structure, cost of capital and shareholder's wealth. Regression Analysis has been used to construct a mathematical model to determine the impact of one variable on others. We found that value of R square is 0.8% which indicates that independent variables (capital structure and cost of capital) explain only 0.8% variance in dependent variable (shareholders' wealth maximization). F value is 0.244 which is significant at 78.4% significant level. Result of the study shows that there is linearity between cost of capital and shareholder's wealth maximization while there is no relationship or linearity between shareholders' wealth maximization and capital structure.