The Impact of Financing Decision on the Shareholder Value Creation

The purpose of this paper is to explore an optimal capital structure to maximize the shareholder wealth, also we try to determine the most significant determinants for shareholder value creation. Using a sample of French firms introduced on the stock exchange and belonging to SBF 250 index over a period from 1999 to 2005. We use in the paper a panel data. It provides the researcher a large number of data points, increasing the degrees of freedom and reducing the colinearity among explanatory variables, hence improving the efficiency of econometric estimates. Our result shows that the estimation of both empirical models explaining the shareholder value, we notice that the self-financing explains positively and significantly the shareholder value creation for both measure (EVA and MVA). The equity issue supply’s to explain negatively and significantly the shareholder value for both measure. The financial debt contributes to explain positively and significantly the EVA. But it’s negatively related to MVA. The impact of financial factors on shareholder value depends to measure taken and the financial structure added to the model. Several authors have investigated how shareholder value creation can be increased, Rappaport (1987) has defined the value drivers as financial factors. The relationship between capital structure and firm value has been the subject of considerable debate. Indeed, the Pecking Order Theory and the Static Trade-off Theory found contradictory predictions in term of the impact of the financial structure on the shareholder value creation.