An Analysis of the Impact of Capital Structure on Corporate Performance in the United States and United Kingdom.
Kautto Penttinen, Aatto (2023)
2023
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2023060621912
https://urn.fi/URN:NBN:fi:amk-2023060621912
Tiivistelmä
One of the most fundamental decisions which an organization must make is how to finance its operations. A corporation’s directors and managers spend a considerable number of hours estimating the effects of its capital structure since it has an impact on its accounting performance and stock market performance. The aim is to explore the capital structure determinants and their effects on corporate performance to offer insights for answering the abovementioned problem. To address financial performance both accounting performance measures and stock market measures were used. To measure the capital structure, four different approaches were used. Debt-to-book value of the company and the debt-to-market value of the company takes into consideration the total debt of the company, whereas the long-term debt-to-book value of the company and long-term debt-to-market value of the company excludes short-term obligations.
The sample consists of 100 top-performing companies from both the U.S. market and the UK market. The market data of 200 companies was collected from Yahoo Finance concerning the S&P 500 companies, and Investing.com concerning the FTSE All-Share companies. Companies’ accounting data was extracted from their annual reports. Further analysis includes descriptive statistics, the Pearson correlation coefficient, and ordinary least squares (OLS) regression statistics. The analysis was conducted by using SPSS software. The descriptive statistic gave a holistic view of the dataset, while the correlation coefficient revealed the level of association between the variables. Finally, the regression analysis resulted in findings on the impact of capital structure on financial performance measures. The methodology was designed to support the validity and reliability of the study.
The results revealed a different level of impact in represented markets. The U.S. companies were able to manage more efficiently their assets and increase their market valuation, whereas the UK companies were more efficient in managing both equity and debt. The findings can be concluded by stating that the increasing leverage increased the asset management and market valuation of the companies but resulted in a declining return on equity and an increasing required rate of return.
The sample consists of 100 top-performing companies from both the U.S. market and the UK market. The market data of 200 companies was collected from Yahoo Finance concerning the S&P 500 companies, and Investing.com concerning the FTSE All-Share companies. Companies’ accounting data was extracted from their annual reports. Further analysis includes descriptive statistics, the Pearson correlation coefficient, and ordinary least squares (OLS) regression statistics. The analysis was conducted by using SPSS software. The descriptive statistic gave a holistic view of the dataset, while the correlation coefficient revealed the level of association between the variables. Finally, the regression analysis resulted in findings on the impact of capital structure on financial performance measures. The methodology was designed to support the validity and reliability of the study.
The results revealed a different level of impact in represented markets. The U.S. companies were able to manage more efficiently their assets and increase their market valuation, whereas the UK companies were more efficient in managing both equity and debt. The findings can be concluded by stating that the increasing leverage increased the asset management and market valuation of the companies but resulted in a declining return on equity and an increasing required rate of return.