The comparison of capital structure across industry in UK Dissertation

The comparison of capital structure across industry in UK - Dissertation Example This research work aims at reviewing the literature and identifying the factors which determine the capital structure of firms, and then empirically investigating the relationship between leverage and factors influencing it in different industries in the United Kingdom, which include basic materials sector, financial services sector, customer services sector, consumer goods sector and real estate sector. In this regard, the researcher has made use of secondary sources of information to collect information required for analysis and has conducted descriptive and statistical analysis. The results obtained do not exactly match with the findings form the literatures. OLS method is used to test four hypotheses based on the factors affecting leverage ratio or debt-to-equity ratio using 40 companies from each of five sectors. Only in case of basic materials sector the model is significant and we find a significant relationship of leverage ratio with free cash flow and tax benefits. Again for financial services sector tax benefits is significantly associated with leverage but other variables are not. Amongst the control variables (tax benefits and growth rate) only tax benefits is inversely related in case of basic materials and directly related in case of financial services. ... es Figure 1: Preliminary Understanding of Debt to Equity Ratios in the Sectors Selected 33 List of Tables Table 1: Preliminary Understanding of Debt to Equity Ratios in the Sectors Selected 32 Table 2: Descriptive Findings – Basic Materials 34 Table 3: Descriptive Findings – Financial Services 35 Table 4: Descriptive Findings – Consumer Services 35 Table 5: Descriptive Findings – Consumer Goods 36 Table 6: Descriptive Findings – Real Estate 37 Table 7: Regression Analysis – Basic Materials Sector 38 Table 8: Regression Analysis – Financial Services Sector 39 Table 9: Regression Analysis – Consumer Services Sector 41 Table 10: Regression Analysis – Consumer Goods Sector 42 Table 11: Regression Analysis – Real Estate Sector 44 Chapter 1 – Introduction 1.1. Background to the Context At present all the major business organizations are uncertain regarding the fiscal decision which has to choose between the organi zational debts and its equity capital (Kuhn, 2006). The capital structure of an organization has a direct influence either positive or negative (Bierman, 2003), on the output i.e., revenue and profits and the business. The basic target of researchers while investigating capital structure, were mainly the developed countries particularly UK. Researchers have shown that firms of developing nations tend more to raise capital through equity while developed nations raise capital through leverage or external debt. The legal conditions and tax incentives play a significant role in a firm’s decision about capital structure. Hence a nation with underdeveloped capital market conditions and low protection of creditors will choose internal sources of funds (Baker and Martin, 2011). Decisions regarding capital structure are not an easy task (George,