The Effect of Capital Structure on Share Prices based on the FTSE 100 Essay

The Effect of Capital Structure on Share Prices based on the FTSE 100 - Essay Example Further analysis of the literature has revealed that besides Market Value, the debt levels of the firm as well as the earnings offered to investors are other influential factors that determine the stock price. This paper aims to construct a regression model for the stock price of most FTSE 100 firms by accommodating these three parameters as variables. Further, the paper contains an elaborate statistical analysis to improve the model and remove any inconsistencies. Studies on Corporate Finance by researchers like Kevin (2006) have debated over the consequences of examining the fragmentation of the firm’s capital structure into various organizational parameters and have expressed the possibilities of analyzing their individual and collective influences on the movement of related share prices and their ultimate impact on returns to shareholders. A company’s capital structure consists of a multitude of assets in the form of equity, debt and other securities, each of which are included into the structure in proportions deemed necessary and sufficient by the firm. Studies by Modigliani and Miller (1958) conducted studies which demonstrate that in scenarios where the investment decisions are fairly stable, the market value of the firm stands invariant to its capital structure composition assuming that the financial markets are perfect in nature (i.e., markets comprising perfect competition and no friction) and provide tax-free returns. Further, Kleinbaum (2008) has shown that in cases where there is an additional component of protective debt covenants, the market value of the firm’s securities is not influenced by any changes in the capital structure. However, the value of the firm and the invariance of the security values can be vulnerable to taxation both at the firm as well as individual levels. This is also true in the case of debt covenants that are

International Business Research Paper Example | Topics and Well Written Essays - 750 words - 1

International Business - Research Paper Example BRIC nations, however, continued to grow between 7-10% in 2004-2007. However, in 2009, the global economy posted its first GDP loss since the post-world war two periods. With unsustainable debt levels and crippling unemployment, the advanced economies of the west began to stagnate, at best grow sluggishly. Developing countries including China and India experienced strong growth, however, as they grew their overall exports, made infrastructural investments and had increased consumption levels. China overtook Japan as the world’s second largest economy. The second phase of the principle financial crisis started in 2009 with the defaulting of Dubai. Spreading across into Europe, it caused job losses. During the 1970’s, oil averaged $16 a barrel, shooting up to $146 in July 2008. This allowed countries like UAE to withstand the adverse effects of soaring debts, due in large part to their oil wealth. International businesses will now find it cheaper to invest in countries li ke China, India, China and India due to their cheap labor and the UAE due to their vast cash reserves to cushion them against debt and drastic job losses. In the USA, however, with soaring debts, dwindling cash reserves and high unemployment amongst highly skilled workers, the conditions are not conducive now for investment. Question #2 It is relevant to study global business for any person in the world of business, whatever the size of their particular organization. Majority of products are imported. Closing a deal in China and doing so in France will be a very different process. Businesspersons need to be aware of customs, in followed in other countries in-order to be successful. It is also necessary to consider the shipping cost difference, since this will change â€Å"landed cost† of a commodity, together with the price it retails at and the margin of profit. After the Second World War, most western countries began to remove barriers, allowing free transfer of services, g oods and capital between themselves. Countries in the east have followed suit. Under GATT, over100 nations further negotiated tariff decrease, while taking strides in resolution of issues removed from tariffs, for example service trade and intellectual property. While this decrease of most trade barriers made market and service globalization a possibility theoretically, changes in technology made the reality tangible. Major information processing and communication advances since the end of World War 2 have made global trade relatively easier. Advancement of the World Wide Web and the internet are undoubtedly the backbone for tomorrow’s information, allowing 1.3 billion users to communicate in 2007. In business, this is a potentially lucrative goldmine. Massive advancements in transportation technology have also enabled firms to respond faster and with more personality to demands by international customers. The implication of globalization cannot be ignored. In today’s firms, business is more competitive and complex than it was, say 7 decades ago. International and cultural challenges have become more pronounced, thus studying international business is of utmost importance, even for small firm employees. Question #3 Sen puts forward the argument that, in economic life, the ultimate mark is freedom. Thus, development needs the extrication of key impediments of real freedom: tyranny, social