Aims evaluate aspects which can influence theAims evaluate aspects which can influence the

and Objectives


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The aim of
the research is to define and evaluate the relationship between capital
structure and corporate strategy in certain listed UK organisations.


objective of the research is to investigate the connection between an
organisation’s corporate strategy and capital structure along with to determine
the way selection of strategy is influencing the capital structure decisions
within an organisation. The evaluation intends to be demonstrated by
experiential information from British organisations. The research will have
early proposal that the selected placement of corporate strategy is motivating
a secondary selection of capital structure within an organisation. Hence, the
objective of the research is to evaluate whether this is the situation of
British organisations. By evaluating this plan, the general objective will be
to obtain more understanding regarding the overall connection between corporate
strategy and capital structure and also to evaluate aspects which can influence
the connection. Finally, since the capital structure and the corporate strategy
have traditionally been examined separately, the objective of the research will
also be to lessen the gap of experiential evidence about their connection.

Research Questions and Hypothesis

research will intend to answer the following key question:

·      What is the relationship between
capital structure and corporate strategy for British organisations?

Based on
the key research question, the sub questions are as follows:

§  What are the determinants of
corporate strategy?

§  How corporate strategy is related
with capital structure?

§  How the choices of capital structure
influence the British organisations? 


A common
goal of corporate strategy is growth. Hence, growth of organisations will be
assessed in the research in relation with the connection with capital
structure. Growth in this context is described if an organisation is growing
quicker in comparison with the competitors. Generally an organisation desire to
grow for accomplishing long run targets for example enhanced sales (Koller
& et. Al., 2010). This help to create the first hypothesis of the research,
where it can be considered that sales growth is related with capital structure,
which can be measured by the debt equity ratio of an organisation. Therefore,
the first hypothesis will be:

H0: There is no relationship between
sales growth and debt equity ratio/leverage ratio

H1: There is relationship between
sales growth and debt equity ratio/leverage ratio

corporate strategy can only be profitable if the investment generates high
return on invested capital or return on capital employed (ROCE), in comparison
with the cost of capital. It is of high significance for any organisation to
have proper balance between the ROCE and capital structure in order to have
long run value development. Organisations which already have a typically high
ROCE have a tendency to obtain advantage more from enhanced revenue (Baghal
& et. Al., 2007). This gives the indication for the development of second
hypothesis, which is:

H0: There is no relationship between
ROCE and debt equity ratio/leverage ratio

H2: There is relationship between
ROCE and debt equity ratio/leverage ratio

Kraus &
Litzenberger (2003) has stated State Trade Off philosophy, according to which,
ideal capital structure is subject to the trade-off between tax advantages of
debt and the expenses of financial loss. Furthermore, they exemplified that
market value of a leveraged organisation is similar to unleveraged market
value, addition with corporate tax and multiplied with market value if
organisation’s debt which is subtracted by current value of bankruptcy
expenses. De Mooij (2011) designates that debt financing provides an
organisation the opportunity of obtain tax advantages. This tax advantages can
enhance the value of shareholders by providing more return on equity (ROE).

Therefore, on the basis of this, the third hypothesis of the research is:

H0: There is no relationship between
ROE and debt equity ratio/leverage ratio

H3: There is relationship between
ROE and debt equity ratio/leverage ratio

and Contribution

of Topic

The business
world’s growing international competition has resulted in increasing
consciousness regarding the significance of efficient corporate strategy
concentrating on core functions, which improves a competitive benefit.

Organisation’s capital structure determines the manner they can fund the
selected strategy, for example using investments in growth prospects. Hence, it
is believed that corporate strategy and capital structure are interweaved and
impacted by each other to a high level. Researchers also argue that a good
incorporation between organisation’s corporate strategy and capital structure
is supreme in order to develop competitive benefit in recent times. Therefore,
it is arguable to state that it is critical for the management of an
organisation to comprehend the significance of this connection. Nevertheless, organisation’s
choices for corporate strategy and capital structure is subject to diverse
limits and patterns, something which makes their connection highly difficult
and hard to completely comprehend (La rocca & La rocca, 2007). Hence, it is
sticky for management to include this connection completely and decisions about
strategy and funding tend to happen on unplanned basis. Therefore, it is
important to have clear picture about the relationship between corporate
structure and corporate strategy, otherwise it can result in suboptimal
authority. Besides unplanned choices can also be regarded as inefficient and
will not produce the expected outcome. Accordingly, a better understanding of
this relationship can improve the decision making ability about strategy and
funding within organisations and eventually enrich possibilities for obtaining competitive

for Choice of Topic

In the
current era, where economic uncertainty and technological innovations are
increasing at rapid pace, organisations are facing problems to select the most
suitable corporate strategy and structure. Organisations are confronting
transformations in their form, structure and strategies. These transformations
are assumed by decisions made by the management that should not only require knowing
about the selection of appropriate corporate strategy, but also the capital
structure which assures long run survival. It is also vital to comprehend the
influence diverse corporate strategies on the blend of capital structure which
will be the core aspect of the research. In reality, corporate strategy and
capital structure are two thoughts that have long been controversial, because
they influence on variety of other aspects of business and management (Björklund,
2016). The rationality of
understanding the relationship between corporate strategy and corporate
structure arose since there is lack of agreement regarding the aspects which
influence the capital structure decisions. It is worth mentioning that
corporate strategy has been a key subject for various researches. The expenses
and advantages derived from numerous corporate strategies are key interest of
the study because it can generate organisational value. Then again, researches
on the connection between corporate strategies and capital structure begin to
become a topic of interest on the basis of the fact that accepting any new
strategy necessitates key changes in capital structure of the organisation.

Such change can cause the chosen strategy to be less attractive if it does not
adjust with the business. These indicators together provided the thought of the