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Target gearing in the UK: a triangulated approach

Author

Listed:
  • Jon Tucker
  • John Pointon
  • Moji Olugbode

Abstract

Purpose - The purpose of this study is to investigate the incidence of target gearing behaviour in firms as well as the drivers of such behaviour. Design/methodology/approach - The paper employs a triangulation approach across three methodological phases: a questionnaire survey, logistic regression modelling of firm data, and interviews with finance directors. The results are then discussed under the key themes of gearing optimality, valuation issues, external drivers, the finance life‐cycle, the impact of risk, and the relationship between gearing and corporate strategy. Findings - The results reveal that the majority of firms engage in targeting, though targets are subject to fairly frequent revision as both external and internal drivers evolve. Important external drivers include macroeconomic variables and analysts' views, whereas important internal drivers include income gearing and profitability. Practical implications - Given the range and variety of drivers, target gearing evidently represents a complex strategic decision for finance directors. The paper provides a benchmark perspective for finance directors when determining their firm's gearing strategy. Originality/value - The innovation of the paper is the study of target gearing across three methods, the results of which are then triangulated to provide a deeper understanding of both the quantifiable and qualitative drivers of gearing. This provides a far broader insight into the real‐world determination of gearing strategy than a conventional empirical approach.

Suggested Citation

  • Jon Tucker & John Pointon & Moji Olugbode, 2010. "Target gearing in the UK: a triangulated approach," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(1), pages 58-80, February.
    • Handle: RePEc:eme:ijmfpp:v:6:y:2010:i:1:p:58-80
    DOI: 10.1108/17439131011015797
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    References listed on IDEAS

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    Cited by:

    1. Stefan Dierkes & Ulrich Schäfer, 2017. "Corporate taxes, capital structure, and valuation: Combining Modigliani/Miller and Miles/Ezzell," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 363-383, February.

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