CHAPTER II

REVIEW OF LITERATURE

REVIEW OF LITERATURE

1. Barton and Schmidt (1986) The size of the equity pool also may depend on the rate of
profitability, income distribution, and equity redemption. Decisions by cooperative
management and members regarding equity investment should be based on the members
cost of equity capital. The cost to the member of providing equity is the opportunity cost
of investing money in a member's own operation or other alternatives.
2. Cobia and Brewer (1988). An agricultural cooperative requires capital to finance fixed
assets (such as land, buildings, and equipment) and other assets (such as investments in
other cooperatives), and to provide working capital. Thus, cooperative management may
follow the practice of maximizing the use of equity capital and minimizing the use of
debt.
3. Featherstone (1989) The cooperative needs to determine a leverage level and then
manage equity investment and redemption to achieve this level. Cooperatives must be lie
to identify optimal levels of debt and equity to operate efficiently and to guard against
unexpected economic shocks, because leverage affects the probability of equity loss and
bankruptcy
4. Cobia and Brewer (1990) Cooperatives also acquire capital through debt financing.
Using debt is attractive to cooperative directors who represent members' interests,
because it allows for members to achieve a higher return on patronage and equity when
the cost of debt is less than the cost of equity. However, acquiring too much debt subjects
the cooperative to unbearable financial risk caused by varying profitability and interest
rates.
5. JL Berens and CJ Cuny (1995) corporate finance researchers have long been puzzled
by Iow corporate debt ratios given debt's corporate tax advantage. This article recognizes
that firm value typically reflects a growing stream of earnings, while current debt reflects
 a no growing stream of interest payments. Debt to value is therefore a distorted measure
of corporate tax shielding
6. Hopkins (1995) one of the most important and most difficult decisions cooperative
management must make is the choice of capital structure. Through proper capital
sln1cture, management can influence the financial performance of the business (Forster).
The cost of debt is less than the cost of equity capital because of differences in risk and
the tax deductibility of debt.
7. Davis, Henry A (1998) Capital structure describes how a corporation has organized its
capital-how it obtains the financial resources with which it operates its business.
Businesses adopt various capital structures to meet both internal needs for capital and
external requirements for returns on shareholders investments Executives Research
Foundation.
8. Vojislav Maksimovic (1999) This paper analyzes the relationship between a firm's
capital structure and its information acquisition prior to capital budgeting decisions. It is
found that low-growth industries can sustain a large number of levered firms. In these
industries, leverage is negatively related to a firm's incentive to acquire information
during the capital budgeting process.
9. Arntzen. L. Fallan (2003) The most important arguments for what could determine
capital structure is the pecking order these static trade off theory. These two theories are
reviewed, but neither of them provides a complete description of the situation and why
some firms prefer equity and others debt under different circumstances.
10. Christopher J. Green (2004) capital structure and firm ownership in order to identify
the leading theoretical and empirical issues in this area. The theoretical component of the
survey attempts to reconcile competing theories of capital structure and appraises recent
models which use agency theory and asymmetric information to explore the impact of
managerial shareholdings, corporate strategy and taxation on the firm's capital structure.
11. Denis (2004) The field of empirical capital structure studies is very actively researched,
the large majority of studies has been conducted on samples of large firms. The relative
shortage of research into private small firm capital structure is troubling because small
firms provide about half of private sector employment and produce about half of private
 sector output in the United Even their aggregate importance as users of financing has
recently surpassed that of better-known large-firm markets.
12. Dirk hack births (2004) This paper develops a framework for analyzing the impact of
macroeconomic conditions on credit risk and dynamic capital structure choice. We begin
by observing that when cash flows depend on current economic conditions, there will be
a benefit for firms to adapt their default and financing policies to the position of the
economy in the business cycle phase.

13. Fernandez (2004) capital structure and factor-product markets. These studies relate some
elements of the modern financial theory to the stakeholder theory, industrial organization,
and firms strategic management. Three main points are highlighted. First, the relevant
role of non-financial stakeholders in capital structure design. Second, the interactions
between capital structure and market structure.
14. Frank Adams (2004) Capital structure theories grounded in the finance paradigm
(agency theory, transaction cost theory) have contributed to our understanding of capital
structure decision making. However, they do not address the intricacies of capital
structure decision making from a managerial choice perspective, especially in privately
held firms.
15. Hovakimian (2004) This study examines capital structure decisions in a small and
medium enterprise (SME) setting. Specifically, we look at two main issues. First, we test
whether industry median leverage, which has been found to affect large firm capital
structure decisions also guide financing patterns of SMEs
16. Yimin Zhang and Tianmu Wang (2010) have considered the cost structure, profitability
and productivity of the Chinese textile industry and estimated the impacts of RMB
appreciation on this industry for 1999–2006. It was found that the industry had suffered
from very low profit margins and returns on capital. Because the input prices have been
increasing, particularly since 2001, generating profits had become more difficult task for
the industry.
17. Nevertheless, the industry achieved substantial productivity growth during the period
examined. Although at an inadequate level, the profitability of the industry did show
 some signs of improvement. As long as this trend continued, the industry could have
obtained a decent level of profitability. Since 2011, the industry has faced a new
challenge; the appreciation of the RMB. Based on 2006 data, it estimated the maximum
rate of RMB appreciation
18. Neha Mittal (2011) has studied the determination of the capital structure choice of the
selected Indian companies. The main objective was to investigate whether and to what
extent the main structure theories could explain the capital structure choice of Indian
firms. It has applied multiple regression models on the selected industries by taking data
for the period 2010-2015. The study concluded that the main variables determining
capital structure of industries in India were agency cost, assets structure, non-debt tax
shield and size. The coefficients of these variables were significant at one per cent and
five per cent levels.
19. Merger and acquisition for long have been an important phenomenon in the US and UK
economics. In India also, they have now become a matter of everyday occurrence. They
are the subject of counting interest to different persons such as the business executives
who are looking for potential merger partners, investment bankers who manage the
mergers, lawyers who advice the parties, regulatory authorities concern with the
operations of security market and growing corporate concentration in the economy and
academic researchers who want to understand these phenomenon better.
20. Gallet C.A (1996), “Merger and Market Power in the US Steel industry” He examine the
relationship between mergers in the U.S. steel industry and the market power. The study
employed New Empirical Industrial Organization (NEIO) approach which estimates the
degree of market power from a system of demand and supply equations. The study
analyzed yearly observations over the period between 1950 and 1988 and results have
revealed that in the period of1968 to 1971 merges did not have a significant effect on
market power in the steel industry; whereas mergers in 1978 and 1983 did slightly boost
market power in the steel industry.
21. Anup Agraval Jeffrey F. Jaffe (1999), “The Post-merger Performance Puzzle” they
examines the literature on long-run abnormal returns following mergers. The paper also
examines explanations for any findings of underperformance following mergers. We
conclude that the evidence does not support the conjecture that underperformance is
 specifically due to a slow adjustment to merger news. We convincingly reject the EPS
myopia hypothesis, i.e. the hypothesis that the market initially overvalues acquirers if the
acquisition increases EPS, ultimately leading to long-run under-performance.
22. Saple V. (2000), “Diversification, Mergers and their Effect on Firm Performance: A
Study of the Indian Corporate Sector” he finds that the target firms were better than
industry averages while the acquiring firm shad lower than industry average profitability.
Overall, acquirers were high growth firms which had improved the performance over the
years prior to the merger and had a higher liquidity.
23. Beena P.L (2000), ‘An analysis of merger in the private corporate sector in India’ she
attempts to analyze the significance of merger and their characteristics. The paper
establishes that acceleration of the merger movement in the early 1990s was accompanied
by the dominance of merger between firms belonging to the same business group of
houses with similar product line.
24. Vardhana Pawaskar (2001), “Effect of Mergers on Corporate Performance in India” he
studied the impact of mergers on corporate performance. It compared the pre- and
postmerger operating performance of the corporations involved in merger between 1992
and 1995 to identify their financial characteristics. The study identified the profile of the
profits. The regression analysis explained that there was no increase in the post- merger
profits. The study of a sample of firms, restructured through mergers, showed that the
merging firms were at the lower end in terms of growth, tax and liquidity of the industry.
The merged firms performed better than industry in terms of profitability.
25. Paul (2003) “The merger of Bank of Madura with ICICI Bank”. The researcher evaluated
the valuation of the swap ratio, the announcement of the swap ratio, share price
fluctuations of the banks before the merger decision announcement and the impact of the
merger decision on the share prices. He also attempted the suitability of the merger
between the 57 year old Bank of Madura with its traditional focus on mass banking
strategies based on social objectives, and ICICI Bank, a six year old ‘new age’
organisation, which had been emphasizing parameters like profitability in the interests of
shareholders. It was concluded that synergies generated by the merger would include
increased financial capability, branch network, customer base, rural reach, and better
 technology. However, managing human resources and rural branches may be a challenge
given the differing work cultures in the two organizations.
26. Joydeep Biswas (2004) “ Recent trend of merger in the Indian private corporate sector”.
They research about Corporate restructuring in the form M&A has become a natural and
perhaps a desirable phenomenon in the current economic environment. In the tune with
the worldwide trend, M&A have become an important conduit for FDI inflows in India in
recent years. In this paper it is argued that the Greenfiled FDI and cross-border M&As
are not alternatives in developing countries like India.
27. Vanitha. S (2007) “Mergers and Acquisition in Manufacturing Industry” she analyzed
the financial performance of the merged companies, share price reaction to the
announcement of merger and acquisition and the impact of financial variables on the
share price of merged companies. The author found that the merged company reacted
positively to the merger announcement and also, few financial variables only influenced
the share price of the merged companies.
28. Vanitha. S and Selvam. M (2007) “Financial Performance of Indian Manufacturing
Companies during Pre and Post Merger” they analyzed the pre and post merger
performance of Indian manufacturing sector during 2000-2002 by using a sample of 17
companies out of 58 (thirty percent of the total population). For financial performance
analysis, they used ratio analysis, mean, standard deviation and ‘t’ test. They found that
the overall financial performance of merged companies in respect of 13 variables were
not significantly different from the expectations.
29. Kumar (2009), "Post-Merger Corporate Performance: an Indian Perspective" examined
the post-merger operating performance of a sample of 30 acquiring companies involved
in merger activities during the period 1999-2002 in India. The study attempts to identify
synergies, if any, resulting from mergers. The study uses accounting data to examine
merger related gains to the acquiring firms