Dividend payments by a firm change the capital structure by replacing equity with debt. Is it true or false? I'm confused about it and can't understand the logic behind it.. Help needed!

Changing capital structure... yes. Replacing equity with debt... maybe.

A dividend payment represents a reduction of equity, while having no effect on debt. Thus the relative proportion of equity to debt (e.g. the Debt / Equity ratio) changes, and that constitutes a change in capital structure.

"Replacing equity with debt" is another matter. It implies a dividend that's financed with the proceeds of a new debt issue (a so-called 'leveraged recap'). This may indeed be part of a dividend payout, but it isn't necessarily the case. If so, though, you've got a ramp-up in debt along with the equity decrease, and hence it's a more dramatic shift in the capital structure, than what you'd have with a dividend payout financed with internal cash, or an asset sale.

Thanks.. it is of great help :D