Case of Retail Industry
To analyse The Effect of Credit Scoring on the Capital Structure Decisions of a Firm: Case of Retail Industry
Purpose: The major aim of the research is to analyze the Effect of Credit Scoring on the Capital Structure Decisions of a Firm in the case of retail sector.
Background: It has been found that managers of different companies make efforts and issue new shares in the market for the purpose of preventing negative credit rating thereby striving to assume the debt within the company from speculative grades to investment grade. In this consideration, it has been found that CFOs consider credit rating as an important factor while deciding the capital structure of the company. Credit rating is essential for investors because it provides information to the investor about the current position of the company thereby providing an idea about the quality of the company.
Research Methods: The research understudy follows explanatory research design along with the with the survey strategy because interviews have been conducted. The study follows interpretivism and positivism research philosophies while the technique that has been used is both quantitative, as well as qualitative for gathering the data. Quantitative data has been gathered from annual reports and authentic website like Morning star.
Data Findings: The results of indicate that there is no relationship between credit scoring and capital structure decisions taken by the companies in the retail sector of the UK. The credit rating of Morrison and Debenhams Plc are attractive as compared to other retail companies; however, Tesco’s credit score declined in 2013 and 2014. Moreover, the data reveals that decisions related to debt are taken regardless of the credit score of the companies; nevertheless, credit score provides the creditor with an idea of lending money to specific company.
Recommendations: The companies in the retail sector are advised to make regular payments of loans and choose the creditor who offers attractive credit terms. The companies are suggested to constantly track the credit report of the company so as to timely make the effective decisions while repairing the credit scores.