Impact of capital structure on financial performance of real estate Literature review

Impact of capital structure on financial performance of real estate listed on Chinese stock exchange - Literature review Example There should be a positive balance between the internal and external sources of funds for the firms to operate efficiently. The research paper is relevant for the study. It articulates the dependence of the overall performance of the company and the capital structure preferred by the real estate firms. Brendea, G 2014, Ownership Structure, Performance And Capital Structure Of Romanian Firms, Internal Auditing & Risk Management, 9, 4, pp. 1-9, Business Source Complete, EBSCOhost, viewed 23 February 2015 Brendea, 2014 affirms that the capital structure of a firm affects its performance. Capital structure relates to the ownership structure of most firms listed on the Chinese Stock Exchange. In cases of concentrated ownership among a few shareholders, there exist preferences of use of retained funds as the source of finance to debtors and equity, in that order. Firms adopt contracting more debt as a mechanism of controlling misuse of the firms’ funds by the managers. Managers prefer personal gains to the firms’ financial progress. Such designs of capital structure where shareholders resort to debt contraction help improve the profitability on most of the listed firms. Most firms prefer to obtain the finances from within themselves rather than from outside as outlined in the Pecking Order Theory. According to the theory, real estate firms in China reduce their dependence on borrowed money to fund their investments. Utilization of internal sources of funds results in an increase in profitability. The book is very relevant to the topic of study because it expounds on how equity as a capital affects the profit margins of the company. Iavorskyi, 2013 explains that several theories exist that explain how the capital structures affect the business in various real estate firms listed in the Chinese stock exchange. Modigliani and Miller propose that the owner and capital structure of a firm