Finance Strategy - Just Eat Plc | Study

Running head: FINANCE STRATEGY
Finance strategy
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FINANCE STRATEGY
The capital structure, Just Eat Plc is a combination of debt and equity. Before starting the
explanation of capital structure, it considers some assumption of perfect capital markets
postulation, according to Modigliani and Miller (1958), the company’s investment decision
based on the pre-determination, non- existence of corporate or individual taxes, no charges on
the finnacial distress, unbiased access to similar information by investors, managers and lenders
as well as no transactions or issuance cost.
Modigliani and Miller (M-M) model demonstrates that the issue odf capital structure
decisions is insignificant to the shareholders. To improve the capital structure versions with the
significant and probable predictions, various writers have continuously activated the perfect
markrts assumptions from the M&M theory (Ahmeti and Prenaj 2015).
For example, previous examine referes “no tax” and “no distress cost” predictions that
the M&M model to develop the static trade off models in which corporations trade off tax
benefits of debt finanancing that arise from the tax deductability of interest payments and other
non debt tax shields against the highlightened likeliness of distress which increased the debt
financing by company. These models draw some impactable conclusions, which are backed up in
resersch. Various studies confirm rather strong evidence that the leverage ratios (Cathcart, El-
Jahel and Jabbour 2015)atre undoubtedly related to ancipated tax benefits from the debt
financing, but unfavorably related with the measures of likelihood and the cost of the financial
distress.
Just Eat Plc’s capital structure closely relate with the Pecking order theory (Serrasqueiro
and Caetano 2015). During the 1980s, several studies placed some evidence of negative stock
price reaction to the announcement of the corporate financing events. These negative stock price

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FINANCE STRATEGY
reacts very harshly for the offering of equity than for debt offerings. Convertible debt offerings
than straight debt offerings (Consiglio, Tumminello and Zenios, 2018). Such negative market
reacts the financing events are insconsistent with the basic trade offs models of the capital
structure. A trade off model refers the capital structure adjustment should represent a movement
towards the firm’s optimal capital structure. As a result the the stock price reacts positively. By
defining the Just Eat Plc’s capital structure, the risk of pecking order is high due to 88% of the
equity exposure than debt in their capital structure. AGMs hold these mitigation with the
shareholders that explaining the rationale for the decision.
The Myers and Majluf model (Li et al 2015), established on 1984 stated the insight of the
puzzle of the negative stock price reactions to financing events by modifying the M&M
assumption of equal access to the information.
In this model, the managers possess information to the shareholders which is unavailable
but using this information to make financing choice. Because the mangers elevct to avoid the
issuing securities if they perceive them to be sufficiently undervalued, the announcement of an
offering signals to the managers that on average the company’s shares atre overvalued.
From the capital structure of Just Eat Plc, the model predictions are unlikely to manifest.
Because the financial statements stated clearly about its financial position and the valuation of
equity.
Another capital structure theory, Baker and Wurgler (2002) the market timing hypotheis
(Setyawan 2015) stems for a relaxation of the M&M assumption of equal access to the
information. In the Baker and Wurgler setup that ovserved that the capital structures reflects the
result of cumulative attempts of managers to time the market by issuing the overvalued equity.