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EU Corporate Response to the Current Economic Downturn - Research Paper Example

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This work "EU Corporate Response to the Current Economic Downturn" describes strategic finance policy shifts in the EU. The author outlines the significance of more debt and less equity in order to settle existing debt against the backdrop of the current economic downturn. It is clear that there is very little certainty and still much less clarity as to overall outcomes…
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EU Corporate Response to the Current Economic Downturn
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Download file to see previous pages High- leveraged firms in the EU do not respond to economic crises in the same way that low-leveraged firms do. The former response by adopting a more debt more repayment policy while the latter responds by adopting a less debt more equity policy. This strategic policy dichotomy underlies the very nature of EU corporate culture too. Invariably strategic policy responses of this nature are characterized by paradigm shifts that both primarily and immediately presume corporate governance and sustainability issues.
EU companies operate in a highly regulated competitive environment that gives them little if any, freedom to achieve organizational goals, both short term and long term (Spedding, 2004). In this backdrop leveraging decisions of firms are basically determined by long term organizational goals related outcomes as much as they are determined by theoretical conceptual frameworks. A set of endogenous and exogenous variables that impact these outcomes has been studied with greater emphasis on organizational outcomes related to leverage in general (DeMarzo and Duffie, 1991). However a series of questions as to what, why, when, where, and how have not been properly answered concerning the significance of more debt and less equity in order to settle existing debt against the backdrop of the current economic downturn (Cooper, 2008).
Strategic finance policy shifts in the EU corporate sector against the backdrop of the current global economic downturn have been marked by more debt to pay the existing debt (Pettit, 2007). This kind of leveraging practice has a very far-reaching impact on the overall capital structure of the firm as well (Lele, 1992). Issuing more debt in order to settle existing debt is a strategic financial initiative adopted by EU firms thus obviating the need for issuing equity (O’Conner and Jen, 2002). However the strategic financial policy on leveraging in the EU corporate sector has acquired a new dimension, i.e. while exiting debt might accumulate indefinitely due to interest payment obligations there is very little freedom available to the manager to manipulate the overall capital structure despite the sustained efforts to raise more debt to pay existing debt (Militello and Schwalberg, 2002). The authors suggest a more cautious approach to leverage decisions. ...Download file to see next pagesRead More
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