This paper tests the Pecking Order Theory to see if it best explains the financing behaviour of FTSE 350 UK Food producer firms from the time period of 2001 to 2005. A multiple case study design was used. However, the study approach was retrospective in nature. The Pecking order model as proposed by Shyam-Sunder and Myers, Frank and Goyal; and Rajan and Zingales, was followed in this research. The empirical analysis of firm-year data was compared to a generalised view of the literature to enable an assessment of the commonalities and differences observed. The results suggest that although there is some form of Pecking order behaviour amongst FTSE 350 UK food producer firms, especially when it comes to managers’ preference for the different sources of finance, their financing behaviour is best explained by the trade-off theory of capital structure.
Category - Louie DACOSTA
MBA and FCCA in London, United Kingdom
This study was conducted as a retrospective analysis of Northern Foods Plc., once a major player in FTSE 350 Food Sector, to evaluate its financial situation over a five year period. The ex post factor research design was used for this study. Annual reports and databases on Northern Foods Plc., and Associated British Foods Plc., were used to perform a series of ratio analyses. The results revealed that Northern Foods Plc.’s performance has been declining as evidenced in the profitability ratios calculated. Also, financial strength was weak and working capital has not been effectively managed, hence affecting its cash and profit generation potentials. The company was limited in its ability to grow and expand as it needed to regularly fund its pension deficit, and finance its high levels of debt. The study concludes that Northern Foods was not in a very strong financial position, yet it was not making the required investments to improve, hence its takeover though this paper will not...
