Drivers of Change in US Major Home Appliances Industry

Industry Consolidation

Home appliance industry of Europe and U.S. had matured, so consolidation is best option for the existing firms. They either acquire the regional players to get economies of scale or merge with the rivalries in order decrease the competition. 

Agency Costs and Capital Structure Review

Ang S. James et al. (2000) used two alternative measures of agency costs. First they take direct agency costs, calculated as the difference in dollar expenses between a firm with a certain ownership and management structure and the no agency cost base case firm. This measure captures excessive expenses including perk consumption. They standardized expenses by annual sales.

Literature Review on Determinants of Capital Structure

Now researcher presents a brief discussion on the factors that may have an effect on the firm's debt-equity choice. Various researchers have taken different variables to test capital structure. According to Titman and Wessels (1988), these factors are tangibility of assets, size, growth opportunities, profitability, non-debt tax shields, earnings volatility, uniqueness, and industry classification. But Harris and Raviv (1991), includes advertising expenditure and Research & development (R&D) expenditure in these factors list.

Taxes and Capital Structure Review of Literature

Hennessy A. Christopher and Toni M. Whited (2005) argued that traditional formulations of the financing decision place the firm at date zero with no cash on hand. Such firms are at the debt versus external equity financing margin, since each dollar of debt replaces a dollar of external equity. The problem with the traditional approach is that corporations do not spend their lives at date zero. Rather, they evolve in a stochastic way, finding themselves at different financing margins over time.

Industry Dominant Traits of US Major Home Appliances

Economies of Scale

All the major home appliance manufacturers were trying to gain economies of scale by renovating and building production facilities in order to improve quality and reduce material costs.

What is Business Finance

Business finance refers to money and credit employed in business. Finance is the base of business. It is required to purchase assets and for the flow of economic activities. It is infact the life blood and nerve centre of commercial and industrial enterprises. Business finance may be defined as the provision of money at the time when it is needed by a business.

Literature Review on Mutual Funds

A study was conducted by Grinblatt and Titman (1989) to examine the superior stock selection abilities of mutual fund managers through which researcher generated abnormal returns. For this purpose a sample of 274 funds was taken from 1974 to1984. Study applied Jensen Measure and compared the abnormal returns of active and passive investment strategies both with and without transaction costs, fees, and expenses. The results showed that the actual returns of these funds do not exhibit abnormal performance indicating that investors cannot take advantage of the superior abilities of these portfolio managers by purchasing shares in the mutual funds.