FIN720 | Baitshepi Tebogo| 9302747|MBA |
term paper | CAPITAL STRUCTURE AND DIVIDEND POLICY DISCUSSION: How does Standard Chartered Bank Botswana contribute to this discussion? |
TABLE OF CONTENTS
Historical Background 4
Literature Review 6
Research Objectives 21
Data Analysis 25
Conclusion and Recommendations 27
The paper begins by highlighting the historical background of Standard Chartered Bank, and its evolution over the years, and how it eventually got to set up in ...view middle of the document...
The name Standard Chartered originates from The Chartered Bank of India, Australia and China and The Standard Bank of British South Africa, Wikipedia (2008).
The Chartered Bank was founded by James Wilson following the grant of a Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded in the Cape Province of South Africa in 1862 by John Paterson. However, both banks were keen to exploit the benefits accruing from the expansion in trade at the time, hence profit from financing the movement of goods from Europe to the East and to Africa. In 1969, the two banks merged to form Standard Chartered Bank, ibid.
b. Operations in Botswana
The bank that was to be later known as Standard Chartered Bank Botswana first opened for business in Botswana in Francistown in 1897, but stopped operations immediately thereafter. The Francistown office was, however, reopened and elevated to a status of a full branch in 1956. Other branches were to follow later in Lobatse, Mahalapye and Gaborone in 1958, 1963 and 1964 respectively, Standard Chartered Bank (2007)
The Standard Chartered Bank Botswana Limited became a locally incorporated Public Company in 1975. It has since seen some impressive growth and even listed on the Botswana Stock Exchange, with 25% its shares listed and the balance still held by the parent company Standard Chartered Plc in the United Kingdom. Perhaps as a demonstrable sign of its growth in the country Standard Chartered Bank Botswana, currently, operates out of a network of 20 locations throughout the country offering a diverse number of services, ibid.
2. LITERATURE REVIEW
c. Capital structure
In finance, capital structure means the manner in which a company finances its assets through some combination of equity, debt, or hybrid securities. A company's capital structure is then the make-up or 'structure' of its liabilities.
The Modigliani-Miller (M&M) theorem, proposed by Franco Modigliani and Merton Miller, shapes the basis for modern thinking on capital structure, though it is generally viewed as purely academic since it assumes away many important factors in the capital structure decision. The theorem states that, in a perfect market, the value of a company is irrelevant to how that company is financed. This result provides the base with which to examine real world reasons why capital structure is relevant. These other reasons include bankruptcy costs, agency costs, taxes, information asymmetry, to name some. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the company, Wikipedia (2008).
Assuming a perfect capital market with no transaction or bankruptcy costs, no taxes and with perfect information companies and individuals can borrow at the same interest rate, and investment decisions aren't affected by financing decisions. M&M made two findings under these conditions. Their first 'proposition'...