Introduction

The credit rating vested within major syndicates is a critical parameter of consideration when undertaking funding activities granted in a firm. Moreover, the disposition stems from the need to hold a subtler fiscal position where the firm’s leverage imbalance is essential. The proportionate level of external financing needs to be reviewed before allocating any form of debt. The debt burden undertaken by the firm will often be anchored on the brand equity and precariously determine the forecasted profitability index. A synopsis of two articles authored by Rauh J. & Sufi and Mauer, D attempt to factor in detail the role of corporate debt. Rauh points to how the current debt burden will often affect the net yield output accrued. In addition, Mauer further capitalizes on the role of brand equity captured by the existing debt burden. Intermittent parameters are, however, in greater detail on each set review as minted out below.

Rauh, J. & Sufi, A. (2010). “Capital Structure and Debt Structure,” Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4242-4280, December.

https://ideas.repec.org/a/oup/rfinst/v23y2010i12p4242-4280.html

Economic Question Summary

The set case study explores the economic question of how the influence of capital may hold on the underlying performance of the firm. It is pertinent to note that capital composition is anchored on debt and equity funding. The article exposes the cost of capital as the core driving factor of returns hence its performance. A higher equity stake may constrain shareholders, resulting in low ROE. The move fosters the need to adopt external funding in the form of debt. The financing option allows for a subtler level of turnover if the debt burden is coherently low due low-interest rate, which is the cost of capital.

Data Details

A fiscal review of the adopted data of the set case article highlights various factors. The data adopted under the ascribed study was from controlled experiment data vested under three major databases, including Reuters LPC Deals, Mergent’s Fixed Income Securities Database, and Thompson’s SDC Platinum. The set data is awarded in field experiments where multivariate data is captured dependent on enlisted trending patterns across the set databases. The dataset represents the existing performance of various debts vested across different industries. The data reflected under the enlisted databases comprises time series and cross-sectional data, respectively. Cross-sectional data is majorly anchored on selected periodic observations—for example, fixed interest securities interest rates over a five period. However, time series data reflect the trending patterns of the rates over the past decade (Rauh, 2010). The unit of observation is, however, both the firm and the industry. Individual firms fixed interest securities are reflected with the aggregate performance anchored on the niche industry. The duration of the selected periods majorly arrives on the last twenty fiscal trading periods with the more accessible databases as mentioned above. However, the control experiment was mainly undertaken for ten years of budgetary observations. The number of observations was relatively selected under clustering sampling due to the observations unit being anchored on the firm or industry.

Policy Relevance

The selected policy is relevant due to the critical turnover under which the net output is anchored (Le, 2017). The credibility of the observation is hence impertinent to ensure the yield margin is dependable.

Estimation Methods

The simulation was coherently adopted as the database was relatively bulk, with trending patterns relatively invariable across the period. Moreover, future trends could be asserted through simulated output.

The critical results anchored under the paper point that adopting debts as a funding option is a vital variability parameter that may need to be considered. An optimal debt mix would reduce the cost of capital, allowing the firm to accrue a higher margin and maintain a stable liquidity index. The move is reflected in firms’ performance, signifying the debt’s pivotal role in the firm’s performance.

Policy Implications and Relevance

The enlisted results’ policy implications imply that trading activities need to be readjusted to factor in the debt attested to the firm. Fiscal policies may need or inculcate debt funding to ensure more turnover is attainable and sustainable. The adopted policies ensure that cost of