Discussion of Capital Structure Decision-making Based on EVA Theory

Abstract-This paper deals with the capital structure decision-making based on Economic Value Added (EVA) theory. The paper first reviews the research achievement of the EVA and its relationship with the capital structure. The EVA could measure the real value created by business for shareholders, and has a positive relation with the quality of business capital structure. Secondly, taking a case as an example, the paper makes a claim that the EBIT-EPS method, one of the traditional capital structure decision theories, may guide the management of enterprises chosen inappropriate financing selection so that the EVA value may be damaged. Finally, EVA theory is used for making decisions on capital structure, by comparing EVA values under different financing solutions. It can achieve the target of enterprise which is shareholder value maximization, also make up the defects of traditional capital structure decision theories