Structure of capital market pdf

Capital Structure in Perfect Capital Markets Summing it Up zConservation of Value Principle for Financial Markets » With perfect capital markets, financial transactions neither add nor destroy value, but instead represent a repackaging of risk (and therefore return). - This implies that any financial transaction that appears to be a good deal Capital Structure Itay Goldstein Wharton School, University of Pennsylvania 2 Debt and Equity There are two main types of financing: debtand equity. Consider a two-period world with dates 0and 1. At date 1, the firm's assets are worth X. Capital markets structure is made of primary and secondary markets. Primary markets consist of companies that issue securities and investors who purchase those securities directly from the issuing company. These securities are called Initial Public Offerings (IPO). Surveys of the theory of optimal capital structure always start with the Modigliani and Miller (1958) proof that financing doesn't matter in perfect capital markets.2 Consider the simple, market-value balance sheet in Figure 1. The market values of the firm's debt and equity,D and E, add up to total firm value V. Capital Market is the market where securities are traded and channels savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals and an economy. It plays a significant role in the national economy. It is a place for long-term financial assets which have long or indefinite maturity. The capital market provides long-term debt and equity finance for the government and the corporate sector. Further, Capital market divides into the Primary market and secondary market According to Gerestenberg, "Capital structure of a company refers to the composition or make - up of its capitalisation and it includes all long -.term capital resources, viz,loans, bonds, shares and reserves" Thus capital structure is made - up of debt and equity securities and refers to permanent financing of a firm! to) Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relationship The capital market structure in Pakistan consists of an apex regulator of the markets, the Securities and Exchange Commission Pakistan (SECP), Pakistan Stock Exchange (emerged as a result of merging three stock exchanges during current year), Mercantile Exchanges, Central Depository Company (CDC) and a Clearing and Settlement market competition takes place at the local level. This allows a comparison of super-market competition across markets. The findings in this paper are consistent with the group of theoretical models of capital structure and product-market com-petition that suggest that product-market competition becomes "softer" when lever-age increases. Emerging Market Premiums n Historical risk premiums are close to useless in emerging markets because there is not much data. There are two alternatives: • Historical risk premium plus: Take the mature market premium from the previous page and add to it a country risk premium, which can be estimated by Emerging Market Premiums n Historical risk premiums are close to useless in emerging markets because there is not much data. There are two alternatives: • Historical risk premium plus: Take the mature market premium from the