The Influences of Macro-Economic Factors on Capital Market Performance in Pakistan

Abstract

[2]. It is a snapshot of the amounts and types of capital that a firm has access to, and what financing methods it has used to conduct growth initiatives such as research and development or acquiring assets " . From this definition, we can say that capital structure is a trend at how a company finances its assets through a combination of debt, equity or mixture between securities and that a company's capital structure is then the figuration or structuring its liabilities. Capital structure theories The following capital structure theories have evolved from capital structure literature: Modigliani and miller (mm) theory (1958, 1963): In Modigliani and Miller provided the seminal in capital structure under certain assumptions include no taxes, homogenous expectations, perfect capital markets, and no transaction costs [1]. This theory which called " capital structure irrelevance " states that the relationship between capital structure and cost of capital is irrelevant, that mean the increases in debt does not effect on cost of capital. In a result, the investor's expectations of future benefits are totally effect on firm value and cost of capital. Latterly, Modigliani and Miller introduced new evidence that cost of capital effect on capital structure, and thus effect on firm value with taking taxes as assumption into consideration, which refer that borrowing give tax advantage, because the interest will deduct from the tax which result what is known as tax shields, which in turn reduce the cost of debt and then maximize the firm performance [3]. Pecking order theory: Pecking order theory is the result of Asymmetric information. The pecking order model does not discuss