1).
Little study has been conducted of Indian firms debt-to-book rations before Rajagopal, but he indicates that, given the relatively recent expansion of India's economy, the difference between the U.S. And India, for example,, is not nearly as prohibitively large a one might suspect. This is not to deny that India faces persistent challenges unique in its place in the world: the nation has been "traditionally weighed down by heavily regulated capital markets, opaque accounting and disclosure, and weak corporate governance," but "its economy has seen significant market reform and liberalization since July 1991. As a result, total market capitalization has exploded (for example, tripling between 2002 and 2006), and debt issuance and M&a activity have also seen very significant growth" (Rajagopal 2009, p.28). Changes in the expanding world economy have surprised many analysts in terms of the seismic shift in India's business culture and ability to rationally deploy capital.
Indian businesses continue to possess characteristics that distinguish it from the typical developed economy, such as the dominance of a few major families in commerce and industry (Rajagopal 2009, p.28). However, Rajagopal's study from 1998-2002 was "the largest ever done since India's liberalization of its economic policies, it was found that the differences between India and developed nations such as the U.S. did not substantially affect capital structure choice" (Rajagopal 2009, p.28). This contradicts previous, pre-1991 findings whereby developing markets and the firms within them make choices were characterized by "extreme agency problems stemming from pyramid ownership structures, weak legal protection, and underdeveloped markets for corporate control" (Rajagopal 2009, p.28).
India's financing remains "underdeveloped," and "its capital markets still lack consistent analyst services and are burdened with high levels of information asymmetry" that can make choices regarding financing appear to be irrational in anecdotal situations (Rajagopal 2008, p.28). This reflects the theory that there is a 'pecking order' of "capital structure choice created by the presence of information asymmetries between the firm and its potential financiers. In this theory, external funds are less desirable because informational asymmetries imply that external funds are undervalued in relation to the degree of...
Capital Structure The three companies selected for this report are eBay, Clorox, and Darden Restaurants. eBay is an online auction website, acting as an intermediary between buyers and sellers. Clorox is described as being a manufacturer and marketer of consumer and institutional cleaning and household products. Some of its brands are the eponymous cleaners, Brita water filters, Burt's Bees and a variety of other brands as well. Darden Restaurants operates casual
Capital Structure A company's capital structure is the balance of different methods of financing that provides funding for the company's operations. The basic breakdown is between debt and equity, but preferred shares may also factor into the capital structure. Debt includes all forms of liabilities, including both long-term debt and current liabilities. Equity includes both the book value of shares issued and the company's retained earnings. The market value of the
Capital Structure Decision and Cost of Capital In basic terms, capital structure has got to do with how companies finance their overall operations using various sources of funds. In this text, I recommend what is in my opinion the optimal capital structure for the three companies selected for purposes of this discussion. The companies that will be used for purposes of this discussion are: Alaska Air Group, the Clorox Group, and
Capital Structure Modigliani and Miller argued that capital structure is irrelevant, all other things being equal, but in the real world those other things are never equal. The factors that are ruled out of MM are neutral taxes, no capital market frictions, symmetric access to credit markets, and that firm finance policy reveals no information. Normally, arguments against the irrelevance of capital structure are based on these factors that MM assumed
Capital Structure The optimal capital structure depends on a number of factors. The nature of the business that the company is in is important, in particular the fluctuations in the company's cash flows. The company should also consider the time frame for which the capital is being used. In addition, the optimal capital structure also depends on the degree to which the company is willing to cede control, and the cost
Capital Structure Analysis: Mattel, Clorox and MGM Resorts According to a report in the Journal of Applied Economics, companies with earnings/price ratios that are higher than their estimated after-tax borrowing costs, like Mattel, demonstrate that managers of publicly traded companies are in fact reluctant to make capital structure changes. Clorox, and MGM Resorts International also fit into this category, per my hypothesis. I suggest a radical move for these risk-averse managers
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