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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
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They may have it provided by the founders savings in which case things are relatively Straightforward more usually a company will obtain its capital through a Loan from a bank or other institution or from the general public. Under Company Act-1985 section- 263 and under Company Act-2006 section - 540 to section 564 the UK companies have a wider variety of capital intensifying.
The company is adopting the Economic Value Theory (EVT ) to reward executives. In the past this theory was used to assess business and investment strategy. Now EVT principles are being used for evaluating and rewarding executives.
The new plan is in line with the concept that "rewards increase intrinsic forms of motivation more strongly than they increase extrinsic motivation" (Gotschalg 3).
They also recommended that an ideal capital structure of a firm is with all debt with cheaper debt finance than higher cost & riskier equity but an optimal capital structure exists in which the terms of debt financing & such other real world problems of debt financing (like bankruptcy due to high debt) and tax savings of the debt financing are balancing factors (Modigliani and Miller.
Also, analysts have long been interested in the effects of dividend announcements on share prices.
Such studies have been conducted to test the validity of the information signaling hypothesis when applied to stock or asset prices. The basic principle of the information signaling hypothesis is that when companies announce earnings, dividend, or share repurchase plans, they convey certain information or 'signals' to the market regarding the current and future value of their shares.
Probably the most popular investment vehicle for individual and corporate investors is equities. Gains are realized in the stock market through two mechanisms – through the cash dividends issued by the firm, or by an appreciation in
Respectively, I conjure that varied capital sources are typically based on different costs and thus, needed appropriate analysis for designing an optimal capital structure for raising required finance appropriately (Grundy, n.d.).
In businesses, sources of