Sample Term Paper

One difference that emerges between the two theories applied above is that the static trade off theory makes specified capital structures relevant while the pecking order theory does not. This means that both the theories are partially relevant only in the case of Centrica as it has kept to margins for debt and equity financing for some time but has also been flexible with changing conditions. This is evidenced by the financing changes in 2008 where majority of capital was acquired through rights issues compared to selling bonds, which is a marked shift from the norm, due to the recent financial crisis.

The results show that FTSE 100 fell in January and recovered in February to go above the 600 mark once again. British Petroleum’s stock however dropped below the 600 mark and continued to decline. FTESE Global Energy Index also followed a similar pattern as the FTSE 100. This shows that the pattern is closer to that followed by the market. However, it is still significantly varying from the sector index and the individual stock. This makes a case for the efficient market hypothesis as variation has come about which is due to different actors aiming to get an arbitrage on the price differentials by one estimate but not being able to engage in the activity with complete fluency because of factors relating to credit availability, legal structures and information availability.

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