The pecking order hypothesis
Write an analysis in which you address the following:
• Select two publicly-traded companies within the same industry and present the DuPont analysis for each of these companies. Explain how the debt has served to influence the ROE DuPont performance results for each, and then describe how volatility plays a role in the debt choices in the context of this DuPont analysis.
• Consider each of the following capital structure theories: the tradeoff theory, the signaling theory, the debt financing to constrain the manager’s argument, and the pecking order hypothesis. Briefly describe each of these, and then order them in terms of which theory you believe to be most persuasive down to which you believe to be least persuasive. Form arguments defending your rankings and reference and discuss related academic studies to support your position.
• Use the NCU library to identify an academic article that tests or provides insight into one of the above theories (note the trade-off theory maybe be discussed as an extension to the M&M proposition). Explain the nature of that study that discusses the research questions, the data, the methodology, and the results. Form what you believe would be an important additional research question that would extend the results within that area of study. Thoroughly explain your proposed research question.
Support your assignment with at least five resources. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.
Length: 5-7 pages, not including title and reference pages
Your assignment should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards.
***Here are the readings for the week along with my textbook and ISBN number of the textbook. All together I should have at least 8 scholarly references for this paper.
• Faccio, M., & Xu, J. (2015). Taxes and capital structure. Journal of Financial & Quantitative Analysis, 50(3), 277-300.
• Bloomberg. (Producer). (2012). Wagner: Find opportunities in distressed debt [Video file]. Academic Video Online: Premium.
Textbook name and ISBN number can be found online:
Stephen Ross, R. Westerfield, and J. Jaffe Corporate Finance McGraw-Hill Irwin
ISBN Number 978-1259-2958-81
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