Myers and Bacon (2001) discussed that the debt to equity ratio was positively correlated to the dividend yield. Therefore firms with relatively more investment opportunities would tend to be more geared and vice versa (Ross, 2000). The study by Hu and Liu, (2005) declares that there is a positive correlation between the cash dividend the companies pay and their current earnings, and a inverse relationship between the debt to total assets and dividends They claim current earnings do no really reflect the firm's ability to pay dividends. A firm without the cash flow back up
However, in the case of new growth opportunities present, the equity issuance will be a way to go since the firm will have a high value in response to the growth of the firm because of which higher finance would be generated by the firm. So, in deciding between equity issuance or debt financing, businesses will look in to the nature and the situation it is expected to be in. The pros and cons will be determined and the option most suitable on the basis of the information viable will be opted for by the firms. No sure short answer is present as to whether equity is better or debt
The interesting issue is that the venture capital fund invariably wants the exit that gives rise to the highest financial gain, while the entrepreneur may want to go public for non-pecuniary reasons even when the financial gain from an acquisition is superior. Acquisition exits are more likely to result when venture capital funds have stronger control rights, whereas IPOs are more likely when venture capital funds have weaker control rights. Similarly, corporate venture capital funds are more likely to use a greater number of veto rights (over asset sales, asset purchases, changes in control, and issuances of equity) and more likely to use debt securities than limited partnership venture capital
According to the trade-off theory, firms can optimize their own capital structure because they encounter a trade-off between the advantages and disadvantages of debt on firm's market value; rising leverage by increasing debt means that the firm can benefit from debt tax shields, which will increase its value (Modigliani and Miller’s (1963) Proposition I under corporate taxes). However, high leverage leads to higher (expected) direct and indirect costs of financial distress, thus, decreasing the firm’s market value. Direct costs include the legal and administrative costs of liquidation or reorganization. Indirect costs refer to the impaired ability to conduct business and to agency costs of debt that are specifically related to periods of high
BETA It measures the systematic risk (systemic risk) of the company. Higher the market risk lower will be the dividend payments. PE RATIO There is a debate in corporate finance literature that out of PE ratio and Dividend Payout ratio which is the cause and which the effect is. However in the present study a positive relationship between PE ratio and dividend payout has been
Economic analysis is important in order to understand condition of an economy. The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa. The degree of economic growth is directly proportional to the stock price i.e. when the economic activity is high, the stock prices are also high indicating the prosperous outlook for sales and profit of the firm.
When firms are optimistic about the future, investment spending increases, and vice versa. Marginal efficiency on investment (MIE) also contributes to the volatility of investment spending in investment. MIE is the expected rate of return over cost of an additional unit of a capital good. When MIE increases, investment spending increases because firms believe that they will get a higher return
In current competitive environment where everything is changing rapidly and making all the advancements volatile there needs to be an urge of expanding the clientele and the profitability at the same time. Price premium is a phenomenon where any firm or brand charges more than routine charges for the products. Price premium is taken as the best and most useful estimate of brand equity (Aaker, 1996; Sethuraman, 2000). Price premium is the additional price which consumers are paying for the products, these are high charged products compared to the competitors (Aaker, 1996). According to Aaker price premium can have negative and positive effects.
• Good procurement processes can facilitate suppliers’ coordination and improve forecasting and planning. Better coordination lowers inventories and improves the matching of supply and demand. • Appropriate supplier contracts can allow for sharing the risk, resulting in higher profits for both supplier and the buyer. • Firms can achieve a lower purchase price by increasing the competition through the use of
Increment in Income. Another big advantage of foreign direct investment is the increase of the target country’s income. With more jobs and higher wages, the national income normally increases. As a result, economic growth is spurred. Take note that larger corporations would usually offer higher salary levels than what you would normally find in the target country, which can lead to increment in income.