To analyze The Effect of Credit Scoring on the Capital Structure Decisions of a Firm

 Topic
To analyze The Effect of Credit Scoring on the Capital Structure Decisions of a Firm: Case of
Retail Industry
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Abstract
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.
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Acknowledgement
I am using this opportunity to express my gratitude to everyone who supported me throughout
the course of this project. I am thankful for their aspiring guidance, invaluably constructive
criticism and friendly advice during the project work. I am sincerely grateful to them for sharing
their truthful and illuminating views on a number of issues related to the project.
I would also like to thank my project external guide and all the people who provided me with the
facilities being required and conductive conditions for my MBA project.
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Table of Contents
Abstract........................................................................................................................................... 2
Acknowledgement .......................................................................................................................... 3
Chapter 1: Introduction................................................................................................................... 9
1.1 Introduction........................................................................................................................... 9
1.2 Research Background ........................................................................................................... 9
1.2.1 Retail Industry.............................................................................................................. 10
1.3 Research Objectives............................................................................................................ 11
1.4 Problem Statement.............................................................................................................. 11
1.4 Research Scope ................................................................................................................... 12
1.5 Research Significance......................................................................................................... 12
1.6 Structure of Dissertation ..................................................................................................... 12
1.7 Chapter Summary ............................................................................................................... 13
Chapter 2: Literature Review........................................................................................................ 14
2.1 Introduction......................................................................................................................... 14
2.2 Credit Scoring ..................................................................................................................... 14
2.2.1 Improvement in Credit Score................................................................