Saturday, August 31, 2019

Linguistic Reorganization of States and the Changing Federal Structure of India

India is a federation of states and these states are separated on the basis of major languages. The Indian leaders right after independence made it clear that they wanted a federal state. A federation is the existence of dual polity. It is a group of regions or states united within a Central government. It is a dual form of government where the powers are divided between the centre and the state governments.They each enjoy considerable independence within their sphere of Governance so as to avoid any clash between the two. However the basis on which this federal structure would be implemented was not certain. Right after independence, Jawaharlal Nehru, opposed the formation of states based on linguistic lines. According to him this would lead to the emergence of sub-nationalities that would cause agitation and then to the rising of sovereign states.Thus, initially after Independence the country was divided into states belonging to 3 classes Class ‘A’ states, which were m ade up of the former British Provinces, such as Uttar Pradesh, West Bengal and Bihar; Class ‘B’ states, which were made up of former large princely states and large amalgamated unions of states, such as Hyderabad, Mysore and Rajasthan; and Class ‘C’ states, which were those formed out of smaller princely states, such as Bhopal, Delhi and Vindhya Pradesh. The Dar Commission, which was set up to deal with the question of linguistic states, expressed itself against the linguistic reorganization of states.In November 1948, the JVP committee was set up to review the Dar Commission report because of the insistence from the delegates of Andhra, Kerela, Karnataka and Maharashtra. This report too was against the linguistic reorganization of states. In 1953 following the fast unto death by Potti Sriramulu in support of Telugu speaking Andhra the congress was forced to change its position and Andhra was created in October 1953. In response to the mounting flood of add itional demands the State Reorganization commission was established on December 1953.The report of SRC given in 1955 created 14 new states from the existing 27. In 1956 the act was enacted. This was the first phase of linguistic reorganization, other phases followed during the period from 1960 to 1980 when these 14 states were further subdivided into new states. As the introduction suggests setting up states on linguistic lines was not the aim of the leaders rather they were forced to. They wanted the states to be economically and administratively viable also they wanted to avoid further communalism which might be caused due to the states being reorganized on linguistic basis.Integration and democratic participation were the important aims of the leaders then. There was an attempt for inclusive agglomeration of diverse identities and groups through inter-segmental and inter fractional adjustments and changes. After Independence â€Å"the task of putting the new nation in to working order, dealing with the lions of refugees, of coping with the conflict in Kashmir, of integrating and consolidating into governable units the myriad of princely states and framing constitutions became the most urgent items on the Government’s agenda. â€Å"Unity† and â€Å"security† were the slogans of the day. (J. E. Schwartzberg) However this policy â€Å"proved inadequate when it encountered the large currents of era of mass politics†¦.. The issue of Linguistic states in particular became the focus of popular agitation† (A. S. Narang). Also minorities complained of discrimination by the local government. It was also stated that the political parties repeatedly exploited ethnic minorities anxieties and desires. The Dar Commission discarded the linguistic reorganization on the basis that a state cannot be created having only 70-80% of the population speaking the same language.The commission said that it could not be called a â€Å"linguistic group † but rather a â€Å"big majority†. It was however along this big majority lines that the 14 states were carved out in 1956, thus eliminating the categories of states as class A, B and C. But it gave rise to new problems, for example the SRC did not, at that time, divide the provinces of Bombay and Punjab because they found no neat linguistic lines for division. A separate state of the Punjabi Suba was demanded based on the religious differences between the Hindus and Sikhs.Nehru did not agree with this idea but instead said that additional areas should be incorporated into the present state of Punjab to dilute the Sikh presence and marginalize the separatists within the province. This was mainly because Punjab was a border state and any tampering with the people’s interests might jeopardise the security of the country. But ultimately the new state of Punjab was formed in 1966 when the Sikh leadership abandoned the religious criteria and demanded the formation of Punjab on ethno linguistic lines.Along with the new state of Punjab other 2 new states formed Haryana- which consisted mainly of the Hindi speaking belt of erstwhile Punjab and Himachal Pradesh- which were mainly the hill districts. The province of Bombay was also bifurcated between the Gujarati and Marathi speakers in 1960. â€Å"The first federal revolution thus discarded the design of administrative divisions that Nehru had favoured for independent India, a design which did not recognize the need for congruence between ethnic identity and territorial homelands.The first reorganization did precisely the opposite: it legally acknowledged India as a federation of ethnic subunits. In a sense, Nehru and India had returned to the ethnic fault line conceded by the Congress movement during the struggle for national independence. † (Maya Chadda). This was not the end of all problems. The new issue arose in the north-eastern states. The North-eastern states were the most neglected of all the states in India.The British followed a policy of seclusion that had left the region resentful and suspicious of all governments that had sought to control the Northeast from New Delhi. Along with that the overlapping of the Naga and Mizo tribes across Burma and the Indo-Chinese border, closely linked the issue of ethnic autonomy to national security and territorial control. If India was to keep these areas under her control it was necessary to appease the people living in those areas. And the appropriate answer was found in separating the state of Assam into separate tribal provinces.The Nehru government created the Sixth Schedule to the Constitution which divided the Northeast into three broad areas with special arrangements of power sharing for each. This schedule created district councils which had power over local economy, culture, religion and customs. Eventually with the North-Eastern Area (reorganization) Act 1971, there came in to existence several states from the undivided state of Assam. Tripura and Manipur which were originally parts of Assam became Union Territories in 1956 and then separate states in 1972.Meghalaya became an autonomous state within Assam and then a full-fledged state in 1972. Mizoram was declared a Union Territory. While there were agitations in Tripura and Manipur for separate statehood like the Nagas, Meghalaya and Arunachal Pradesh never demanded a separate statehood. These states were simply created to stop China from claiming these border territories. The state of Mizoram was created in 1987 after signing of accord between the Mizo National Front and the Govt of India after 20 years of insurgency by the dominant Mizo tribe.But this did not end the problem as many linguistic minorities felt that in the states with a dominant language they were outcasts, they were being neglected by the dominant groups and this was leading to the deterioration of not only their culture but also their languages. This identity crisis a mong the various minority groups is still leading to upheaval in different parts of the country. Many linguistic minorities are asking for separate states citing the example of the north-eastern states. LINGO-ETHNIC UPHEAVALS IN DIFFERENT STATES:Even though the states of India have been from time to time reorganized on the basis of linguistics, some problem always seems to crop up regarding one area or another. At present upheavals are more regarding ethnic reorganization rather than linguistics alone. Here is an account of 2 such strifes. THE NAGALIM PROBLEM- One of India’s oldest continuing armed conflict is between the Govt of India and the Nagas. The armed conflict has persisted with two interruptions one in 1960 and another when an accord was signed in 1975. The pact of 1975 was signed between the Govt of India and some willing leaders of Nagaland.This was interpreted as a sellout and thus gave fire to the already heated up issue. The conflict was that of the creation of Nagalim, an integrated land for the Nagas which not only included the present state of Nagaland but also those districts of Manipur, Arunachal Pradesh and Assam containing Nagas as majority. According to J. P. Hutton (1922), â€Å"Nagaland (Nagalim) has always been a sovereign nation occupying a compact area of 120,000 sq. km of the Patkai Range in between the longitude 93 °E and 97 °E and the latitude 23. 5 °N and 28. 3 °N.It lies at the tri-junction of China, India and Burma. Nagalim, without the knowledge and consent of the Naga people, was apportioned between India and Burma after their respective declaration of independence. The part, which India illegally claims, is subdivided and placed under four different administrative units, viz. , Assam, Arunachal Pradesh, Manipur and Nagaland states. The eastern part, which Burma unlawfully claims, is placed under two administrative units, viz. , Kachin State and Sagaing Division (formerly known as the Naga Hills).Nagalim, how ever, transcends all these arbitrary demarcations of boundary†. The integration of the Naga areas of Burma with the areas in India was not the Naga political agenda, but bringing the Nagas of India together has been an issue that unites most Nagas. Even the Nagaland Assembly has passed a number of resolutions expressing support for that cause. The policy of non-interference by the British â€Å"was followed by area expeditions that were resorted to in order to quell opposition of the hill communities to the colonial extension of commercial activities in and through their land.Eventually the hill communities were brought under different territorial administrative authorities and hence the concept of territorial politics was thus introduced, hitherto unknown to the hill communities. The so-called ‘administrative convenience', made some of the ethnic groups fall under one or another political unit. In the process the Naga areas were brought under four administrative units; Assam, Manipur, Nagaland and Arunachal Pradesh. The contiguous Zeliangrong Nagas were divided among the states of Assam (North Cachar Hill district), Nagaland and Manipur.Such whimsical administrative divisions and introduction of territorial politics shattered all ethnic aspirations† (U. A. Shimray) and gave rise to ethnic stirrings The problem with the Nagas are that they are not a linguistic community, they speak as many as 30 different languages which belong to several distinct forms of Tibeto-Burmese language group. The languages spoken by some tribes are incomprehensible by the other Naga tribes. Thus, whether or not some of these groups should be included in to the Nagas is a very big concern. The other major problem is with that of Manipur.The goal of creating a single political unit out of all Naga-inhabited areas puts the Naga project of nationhood in collision course with a parallel Manipuri project. â€Å"Indeed, the issue is so sensitive that until June 2001 the Indian government left the territorial scope of the 1997 ceasefire deliberately vague. Eventually, things came to a head when the NSCN–IM insisted on a clarification, and in June 2001 a joint statement confirmed that the ceasefire was ‘between the Government of India and the NSCN–IM as two entities without territorial limits’.The announcement led to a veritable political explosion in Manipur and significant expression of anger in the other affected states. Seeking guarantees from the Indian government that Manipur’s territorial integrity would not be sacrificed on the altar of Naga peace has now become a major theme in Manipuri politics† (Sanjib Baruah). The United Naga Council (UNC) has issued a statement that calls for a â€Å"peaceful parting† between the Nagas and the Meiteis. But theUNC statement will only aggravate the tense situation in Manipur because it threatens a break-up of the tiny state, a prospect no Meitei will be prepa red to accept. The Centre on the other hand has made it absolutely clear that Manipur’s territorial integrity or Assam’s and Arunachal Pradesh’s cannot be undermined to solve the Naga problem. It is therefor time for the NSCN and other responsible Naga civil society groups to state if they are willing to accept a solution without a â€Å"Greater Nagalim† that will mean slicing up of existing states like Manipur, Assam and Arunachal Pradesh.If they accept then an extensive autonomy plan that give Nagas a chance for socio-cultural integration without changing of state boundaries, should be prepared by the state govts to give something like â€Å"supra-state body† a chance. That may mean that the Nagas will control the areas of Manipur, Assam and Arunachal Pradesh that they inhabit in a majority — but that is a price the three states may have to pay for finally solving the Naga problem that threatens to engulf the whole region.THE GHORKHALAND P ROBLEM- Another big problem for India is that of the Gorkhaland issue. The word Gorkha is historically associated with the Kashas of North India. But it was after the establishment of the Gorkha Dynasty in1559 by Drabya Shah, the word began to be referred to the inhabitants of the Gorkha ruled region. Daniel Wright (1877) says, â€Å"The Gorkhas or the Gorkhalis so named from the former capital of their country are the dominant race. They formerly occupied the district around the town of Gorkha, which is about 40 miles from the city of Katmandu.They are said to be of Rajput descent and to have been driven out of Rajputana on the occasion of an invasion by Musulmans. They first settled near Palpa, having passed through the Kumaon hills, and gradually extending their dominion to Gorkha. † The Gorkhas were originally Indo-Aryan in character but after the Anglo-Nepalese war the British distinguished them as distinctly mongoloid in character. With time the term Gorkhas have been u sed interchangeably with the Nepalis. The struggle for Gorkhaland, it seems, started since 1907 by the leaders of the hill people for a separate administrative setup.In 1917 there was a similar demand to create a separate territory from West Bengal. Similar uprising followed in 1919, 1920, 1930. In 1943 the All India Gorkha League was formed which wanted the govt to recognize the gorkhas as a separate minority. Then in 1949 they demanded a separate state for themselves. But these were all disregarded by the authorities. The main agitation for the Gorkhaland started in the 1980’s under the leadership of Subhas Ghising belonging to the Gorkha National Liberation Front. The GNLF-led agitation for the creation of a separate state of â€Å"Gorkhaland† happened at a time when the Communist Party of India, Marxist [CPI(M)] was firmly in power in the state of West Bengal. Given the CPI(M)’s pro-poor ideology, stellar achievements in land reforms, rural development, and community empowerment in West Bengal, and prior public commitments to grant autonomy to the Gorkhas, it was surprising that sentiments for a separate Gorkhaland grew steadily in the Darjeeling district† (Rajat Ganguly).Once the agitation started it left many people dead, many hundreds homeless, there was loss to the local economy due to strikes etc. More importantly it drove a deep chasm between the majority Bengalis and the minority Gorkhas in West Bengal. All this led to an agreement between the GNLF and Govt of West Bengal & Govt of India in August 1988 that aa autonomous Darjeeling Gorkha Hill Council will be established, but in return the GNLF would have to drop the demand of separate state. However this hardly changed the situation of the hill district.There were hardly any development project carried out by the DGHC and the people felt cheated. The DGHC blamed the West Bengal Government for not providing the necessary funds and for trying to undermine the DGHC’s image and authority in Darjeeling. At times, Subhas Ghising, the GNLF President and Chairperson of the DGHC, even talked of resurrecting the Gorkhaland agitation, which were dismissed by his political opponents as merely pressure tactics to procure more funds from Kolkata. Ghising’s political opponents in turn accused him and the DGHC of being corrupt and wasteful and operating in an undemocratic manner.The struggle for Gorkhaland received a new boost 2008 when a new party called the Gorkha Janamukti Morcha under the leadership of Bimal Gurung. Once a trusted aide of Subhas Ghising, Bimal Gurung decided to break away from the GNLF and started a new agitation for Ghorkhaland. A new party was formed called the Gorkha Janamukti Morcha and on April 2011 they signed a pact with the central and state govts forming the Gorkhaland Territorial Administration, a semi- autonomous body that would replace the DGHC.The reasons why there is a demand for Gorkhaland are: 1. â€Å"Although st ates in post-independent India were reorganized on the basis of ethno-linguistic criteria, the policy failed to eradicate the problem of â€Å"entrapped minorities† as many states within the Indian federation continued to include peripheral minority ethnic groups that were linguistically and culturally different from and politically and economically subordinate to the majority ethnolinguistic communities that wielded power in the states.Many of these entrapped minority groups had a long history of demands for political autonomy or separate political identity and had come to believe that the States Reorganization Commission would consider their case with sympathy. When that did not happen, many of these minority ethnic groups felt frustrated and aggrieved. In the years following the states reorganization, these isolated and peripheral minority ethnic groups came to resent their endemic poverty and underdeveloped status and became convinced that they were being deprived (delibe rately or otherwise) by the majority communities that controlled the state governments.The only way out of this poverty and underdevelopment, these groups felt, was by creating their own state and entering into a direct relationship with the Indian central government for assistance and guidance; for instance, Gorkha leaders in Darjeeling cited the example of Sikkim, which had one-third of Darjeeling’s population but received almost ten times more central grant than Darjeeling†. (Rajat Ganguly) 2.The isolation and under development has been aggravated by the fact that that their homeland has been infiltrated by members of the dominant community and other ethnic groups thereby creating an exploitative cultural division of labour in which valued roles and resources are allocated mostly to the outsiders. The ethnic communities have also failed to successfully compete with the dominant outsiders for valued resources, such as access to education, health care and employment. 3 . The agitators argued that the West Bengal state government have deliberately kept Darjeeling isolated and neglected.They also claimed that much money was spend on the development of Siliguri but very little of these funds went to the hills for the development of Darjeeling, Kalimpong, and other hill towns. For eg- there is still acute shortage of water and the supply is not enough to cater to the demands of the growing population as well as the tourists. The conditions of the roads are appalling and there is a huge dearth of electricityor problems of voltage. 4. The area had no facilities for higher education, the North Bengal University being the only University in that region.But it was situated in Siliguri and not in the hills. 5. This neglect of the region has led to the decline in the tourism industry, which has further led to the decline in employment among the local people. 6. It was also claimed that the Govt offices set up in the area did not benefit the locals as most of the posts went to the outsiders from the plains. Along with that the lack in education facilities did not facilitate the locals in getting the jobs. 7. West Bengal government based in faraway Kolkata appeared to be remote, opaque and unaccountable to the local people of Darjeeling.The CPI(M)’s casual response to the various grievances and problems of the people in Darjeeling also strengthened the local perception that the party neglected the hills in favor of the plains. BODOLAND ISSUE, ASSAM: The Bodos belong to the Tibeto-Burman speaking Indo-Mongoloid ethnic group and are the most commonly found in the Brahmaputra plains of Assam. â€Å"The term Bodo is also used to denote a large number of tribes-the Garos of Meghalaya, Tippera of Tripura, and Boro Kachari, Koch, Rabha, Lalung, Dimasa, Hajong, Chutia, Deuri, and Moran of Assam and other parts of the Northeast†. M. N. Brahma, â€Å"The Bodo Kacharis of Assam-A Brief Introduction,† Bulletin of the Tribal Rese arch Institute [Gauhati], 1:1 [1983], p. 52. ). These tribes ruled over Assam until about 1825 but at present they are found in the northern areas of the Brahmaputra Valley, mainly in Kokrajhar, Darrang, Goalpara, and Kamrup districts. Theirs is a patriarchal society and they mostly follow Bathauism, which is a form of animism, as religion. They mainly practiced Jhooming agriculture but off late have ventured into settled agriculture.Industrial activities are lacking but there may be some silkworm culture done by the Bodos. The demand for a separate Bodoland started during the British rule. It took a major turn after independence and mostly after the formation of Nagaland and other north-eastern states. The bodos formed Plains Tribal Council of Assam (PTCA) in 1967 and demanded the formation of a separate state for the Bodos and all other plain tribes of Assam. The All Bodo Students Union also formed in the same year as a part of PTCA. But with time they all lost hopes upon the part y and started working separately.In the 1980’s Assam saw another movement by the All Assam Student Union (AASU) and Assam Gana Parishad (AGP) about the eviction of foreign nationals from the state. The ABSU worked alongside the AASU with the hope that their cause would receive a boost. The movement ended with the formation of the new AGP Govt. But the ABSU soon realized that the attitude of the new Govt about towards the Bodos is no less different from the preceding Govts. Thus, in 1987 they renewed their struggle for Bodoland, a creation of full-fledged state for the Bodos.The two districts of Kokrajhar and Darrang became the nerve centres of the struggle. Initially the ABSU had a list of 92 demands but later it mainly centred around 3 main agendas: (1) formation of a separate state named Bodoland on the north bank of the Brahmaputra; (2) establishment of autonomous district councils in the tribal dominant areas on the south bank of the Brahmaputra; (3) incorporation of the Bodo Kacharis of Karbi Anglong in the Sixth Schedule of the Indian Constitution The main reasons for this agitation were: 1.The Bodos constituted 49% of Assam's population in 1947; but by the 1971 census they had dropped to 29% due to internal and external migration. The migrant labours from Bangladesh affected the population of the Bodos. They got most of the jobs while the Bodos were left jobless. 2. Another major problem was that the Bodos mostly depended on agriculture for sustenance. The land that belonged to them have been mostly taken away form them by the migrants or for the establishment of tea plantations pushing them away into the forests and thus reducing to poverty and indebtness.The new regulation by the Assam Govt imposed a rule forbidding any settlements inside the forest. All of these led to the entrapment of the tribals and was a major cause for the agitation. 3. In 1950s the Govt of Assam had made a rule forbidding the encroachment of the migrant population in to the special area demarcated for the Scheduled Tribes and Castes. But this was not strictly maintained leading to the loss of land among the tribal and a severe competition for the scarce resources. 4. In 1960s the Assam Govt. declared the Assamese language to be the official language of the state.The effort to impose the language drove a wedge between the two communities. 5. The effort by the Assam Govt to assimilate the different identities and not integrate them led to the fear among the tribals about loosing their identity. This to a large extent led to the agitations. 6. Only 10% of jobs are reserved for plains tribals, including the Bodos. On top of that the requirement of knowledge of the Assamese language to obtain a government job in the state was a further barrier to employment opportunities for Bodo youth. . The progress achieved by hill tribes in neighboring Meghalaya, Mizoram, and Nagaland and the relative advances made by the two hill districts of Assam-Karbi Anglong an d North-Cachar Hills with their autonomous district councils made the Bodos and other plains tribes feel that, despite their larger population, they have been ignored. 8. The creation of separate tribal states for populations smaller than the Bodo in the 1960s and 70s made the demand of the plains tribals seem legitimate. 9.The crafty drawing of the constituencies merging the tribal and non-tribal majorities makes it impossible for the tribals to gain a seat in the state legislators. 10. Lastly, the unrestrained suppression by the law enforcement agencies against Bodo agitators in 1987 fuelled the movement further. The ABSU resorted mostly to bandhs and closures, disrupting the rail and road links of Assam and the rest of the northeastern region. The agitation also saw extortion and harassment of nontribals, non-Bodo school teachers, clerks, foresters posted in tribal areas, and tea plantation managers and employees.But the most serious development of the movement was the formation of the rebel insurgent Bodo Security Force (Bd. SF), comprising a hard core of the Bodo youth wedded to violent tactics to achieve the goal of Bodoland. â€Å"The prolonged movement seriously affected the economy of Assam and the entire northeastern region. The chief ministers of the six northeastern states that were affected by the frequent bandhs urged the movement leaders, the Assam government, and the center to move quickly toward a settlement.Political parties of all hues unequivocally condemned the violence perpetrated by some of the protestors and the consequent police reprisals. The AGP government came down heavily on the agitators, ruling out any need to form a separate Bodoland state to ameliorate the grievances of the plains tribes. It also sought to drive a wedge between the Bodos and other tribes by avowing the need to protect the interests of all tribals in the state, the Bodo- dominant movement notwithstanding. † (Sudhir JacobGeorge) The agitations continued we ll into 1993 with the Bodo Security Force gaining more power and at places marginalising the ABSU and other parties. There were also a number of failed attempts to talk by the Assam Govt and the central Govt. Efforts to solve the Bodo issue continued involving a great deal of ground work and behind-the-scenes effort on the part of Home Affairs Minister Rajesh Pilot, the Bodo Congress (I) legislator, Jaman Singh Brahma, and an emissary of the prime minister. These efforts ultimately resulted in the Bodo Accord, signed at Guwahati on February 20, 1993, formally ending the prolonged Bodoland agitation.The main aspects of the Bodo accord was: 1. Creation of a Bodoland Autonomous Council (BAC). This is only an autonomous hill council and not a separate state. 2. The legislative power of the BAC is to be vested in a 40-member council, out of which 35 members are to be elected on the basis of adult franchise and the remaining five are to be nominated by the governor of Assam. 3. Executive powers are to reside in a smaller Bodoland Executive Council (BEC), similar to a state-level cabinet. 4. There would also be elections for the BAC. 5.The territory of the BAC included the areas between the Sankosh River and Mazbat Pasnoi River, which roughly mark the western and eastern boundaries on the north bank respectively. The more complex southern border of the BAC, often impinging on nontribal areas, appears to have been left unspecified. Comprising 2,750 villages and several small towns, the BAC includes 25 tea plantations. 6. A benchmark for the inclusion of areas in the BAC was that Bodos should constitute 50% or more of a village's population. However, villages with lesser Bodo populations have also been included to ensure territorial continuity. . The BAC is to be organized with 38 departments, mostly corresponding to the subjects earmarked for autonomous district councils, such as education, forests, health, land, and revenue. But law and order was retained by the stat e, along with the right to dismiss the elected council under exceptional circumstances. (Legislative Branch, Assam Act No. 11, 1993) 8. The Accord also provided for the leaders of the movement to ensure the surrender of all arms, explosives, and ammunition by their followers, and bring those who had gone underground back into the national ainstream. All the rights of nontribals living in the BAC area were to be protected, and their language, culture, and land kept intact. [Memorandum of Settlement (Bodo Accord)]. So was the agitation really worth it? The 7 or 8 year long agitation, did it end in the fulfilment of the demands? An analysis of the Bodo accord reveals that the Bodos did not get all that it wanted. Firstly, they did not get the state separated as they would have wanted. Secondly, it was not a tripartite deal rather a bipartite deal with the state and the BAC.Thirdly, it was not a political accord as it was only an administrative institution. The law and order was to be m aintained by the state government. Fourthly, the leaders had to accept only half the area of they actually demanded. It includes 2750 villages only rather than the 4635 initially demanded. Also the area of the BAC is still not defined. All these shortcomings have led to discontent among the Bodo people. The situation is very vulnerable and an outburst again is not far away. Infact a strife did take place in mid 2012 in Assam again.So we see that the there was unnecessary killing of people. The people of different religions and communities were rendered homeless. They had to live in refugee camps. The strife led to the destruction of the valuable forest and wildlife resources because the Bodo security force took shelter in the Manas wildlife reserve. The area was exploited indiscriminately by the security forces. But it seems that the lines of agreement did not do justice to the struggle. All the loss of lives seemed to be in vain the destruction of forests were in vain because they did not receive even half of their want.CONCLUSION We see that even if the state had earlier yielded to the linguistic reorganization of states in the 1950s, 1960s and 1970s they are opposing now. The increasing opposition by the Central and State governments in the recent times has shown that the country is not ready for further divisions. Where they have initially supported the tribal groups in the border areas for the formation of states they are not supporting it now for further division. Thus, the Bodoland, Gorkhaland and Nagalim movement did not hold good. All these movements failed and statehood was not granted.

Unsolved Mysteries – Physics

Unsolved Mysteries – Beyond the standard model The Standard Model is nowhere near perfect. It may explain the six quarks, leptons, and four forces, but it is not complete. There are still questions about antimatter, dark matter, and the inability for the Standard Model to predict particle mass. There is no guarantee that quarks and leptons are actually fundamental. Lastly, scientists still don't understand gravity's role. Unsolved Mysteries – The standard model as a theory The Standard Model is not wrong. However, it needs to be added to as it is an incomplete theory. https://donemyessay.com/physics/If the Standard Model can be expanded to understand mass, gravity, and other important pieces of information. Unsolved Mysteries – Three Generations There are three different sets of quark and lepton pairs, and these sets are called generations. Scientists do not know why there are only three generations, or why they exist in the first place. For example, up/down are first generation quarks, and the electron and its neutrino are the first generation leptons. Unsolved Mysteries – What about masses? The Standard Model also has another major flaw, as it cannot explain why a article has a certain mass.Scientists believe it is linked to something called the Higgs field, and are looking for a Higgs boson. However, these theories are still unconfirmed. Unsolved Mysteries – Grand Unified Theory Scientists have a major goal of creating a theory which will combine all of the fundamental forces into one, which would allow them to understand t he universe. It would also give scientists more answers and make study possibly easier. James Maxwell was successful at unifying electricity and magnetism. Unsolved Mysteries – Forces and the Grand Unified TheoryThere is a belief currently swinging around that forces may merge at high energies. This means that all interactions we observe are all different aspects of the same, unified interaction. This does not make complete sense to scientists, which makes everything confusing. The Grand Unifying Theory also implies that there is a force-carrier particle to cause protons to decay. Unsolved Mysteries – Supersymmetry Another interesting idea is the existence of â€Å"squarks†. These supersymmetric shadow particles need to exist, apparently, for gravity to make sense and be able to e combined with other fundamental theories.Scientists do not know if they actually exist yet. Unsolved Mysteries – String theory The fact that we live in three dimensions means th at quantum mechanics, relativity, and gravity do not actually go together too well. There is a belief that particles are strings and membranes which are also involved with very small dimensions. All of this is confusing. Unsolved Mysteries – Extra Dimensions The idea of extra dimensions comes from the fact that, as humans, we cannot see everything. To a smaller creature, these extra dimensions may be more visible.A preterred example is a tlea and a human on a tightrope. although the human can only go one way, the flea has more options. This technically creates another dimension that only the flea can use. Unsolved Mysteries – Dark matter Lastly, there is also the idea that the Earth is not made up of the same material as a majority of the universe. There is invisible dark matter which is involved with gravitational effects. There is also evidence that it is not made up of protons, neutrons, or electrons, but perhaps one of the supersymmetric particles, or something tha t has yet to be discovered.

Friday, August 30, 2019

Most Important Scientific Event of 2007

The scientific event with the most significant implications for the future was recognition of unique differences between genome sequences of individual people (Pennisi, 2007). It is believed that about 99.5% of human DNA is exactly the same in every person. Within that 0.5% lies the variations that are responsible for individual traits and diseases, including Alzheimer's, Parkinson's, depression, alcoholism, heart disease, and other serious diseases (National Human Genome Research Institute). Genetic variations also affect how individuals respond to drugs and environmental factors. The goals of National Human Genome Research Institute are to discover and type single nucleotide polymorphisms (SNPs) and other forms of genetic variation on a large scale across the genome; to develop high-resolution maps of genetic variation and haplotypes; and to develop methods for the large-scale experimental and statistical analysis of SNPs, other forms of genetic variation, haplotypes and complex traits (National Human Genome Research Institute). Previous work on the human genome has including the search for a relationship between specific genes and various diseases, such as an â€Å"addiction gene† or a â€Å"cancer gene† or some similar link. This research has already led to the identification of specific genes that are responsible for several diseases. Previous research on the human genome has also identified what separates humans from other primates, genetically speaking. In addition to identifying the genome sequences that are responsible for diseases, breakthroughs that occurred during 2007 will allow scientists to pinpoint the genetic variations that make me, me and you, you. Individual genomes appear to include the causes of behavioral traits that had been previously attributed to personality or psychiatric characteristics and not to genetics (Pennisi, 2007). The most obvious application of this research will be in the use of gene therapy to combat diseases. At the simplest level, understanding an individual's predisposition towards certain diseases will allow physicians to recommend preventative treatments and lifestyle choices that can reduce or eliminate the genetic threat. On a more complex level, genetic research can provide new, customized treatments that are specifically designed to match the genetic needs of the individual patient. Genetic medicine could be used to treat diseases after the disease has developed or, in some cases, used to treat genetic disorders during pregnancy. While the medical applications for genome research show much promise, there are also serious implications for individual privacy and genetic discrimination. Once again, legal and ethical development has not kept pace with scientific and technological development. Despite the introduction of several pieces of legislation designed to help ensure genetic privacy and to shield individuals from the misuse of genetic information, there is still no federal legislation that addresses the issue of genetic discrimination in individual insurance coverage or to genetic discrimination in the workplace (U.S. Department of Energy Office of Science, 2007). As the ability to sequence the genome sequences of individuals becomes more practical, insurance companies and other interested parties might consider it cost effective to use genetic sequencing to reduce any potential liabilities from policy holders or applicants. Many insurance companies already have policies regarding preexisting conditions. The leap from policies that exclude   preexisting conditions a policy that excludes diseases for which the individual has a genetic predisposition is not that far removed. The ability to map individual genomes will open new doors for medical treatment of disease. Hopefully, 2008 will see breakthroughs of a similar magnitude in ethics and laws regarding the gathering, sharing, and use of genetic information. References National Human Genome Research Institute, National Institutes of Health (2008). Genetic variation program. Online. Retrieved May 1, 2008, from http://www.genome.gov/10001551 Pennisi, E. (2007). Breakthrough of the year: Human genetic variation. Science, 318 (5858), pp. 1842 – 1843. Retrieved May 1, 2008, from http://www.sciencemag.org/cgi/content/full/318/5858/1842 U.S. Department of Energy Office of Science (2007). Genetics Privacy and Legislation. Online. Retrieved May 1, 2008, from http://www.ornl.gov/sci/techresources/Human_Genome/elsi/legislat.shtml

Thursday, August 29, 2019

Elements in life Essay Example | Topics and Well Written Essays - 500 words

Elements in life - Essay Example Simone Weil, Martin Luther King and Mother Teresa have common qualities that make them exemplary. The elements of self-denial, service and spiritual enlightenment can be seen in the lives of these persons. Their reputations are founded on these qualities that enabled them to be considered as living saints. Although Weil, King and Mother Teresa came from respectable and affluent families, they denied self in order to reach out to others. Simone Weil exercised â€Å"detachment from material things† (â€Å"Simone Weil†, Wikipedia). In the latter part of her life, she was still actively involved in her social projects despite her physical sufferings. Martin Luther King also sacrificed time and his own safety just to help fellow black Americans gain their rights as citizens of the United States of America (Carson, â€Å"Biography of Martin Luther King Jr). Mother Teresa left home and school in exchange for the slums of India (â€Å"Mother Teresa – Biography†, Nobelprize.org). This ability to deny self for the benefit of others is rare among people. But during those times when underprivileged people were neglected, these three persons were willing to sacrifice. Because of their self-denial, they served people with all heart, mind and soul. This kind of service arose from their inner desire to help alleviate the sufferings of their fellowmen. Weil aided the working class in the demand for their social rights, even joining a local factory just to experience the lives of these people (â€Å"Simone Weil†, Wikipedia). King, in spite of the â€Å"increasing resistance he encountered from political leaders† – which could be the reason for his death - continued his objectives for the benefit of the black Americans (Carson, â€Å"Biography of Martin Luther King Jr). Teresa devoted her resources for India’s â€Å"poorest of the poor† (â€Å"Mother Teresa – Biography†, Nobelprize.org). Their labor of love resulted to fruits that other

Wednesday, August 28, 2019

Magnetic Resonance Image(MRI) Research Paper Example | Topics and Well Written Essays - 2000 words

Magnetic Resonance Image(MRI) - Research Paper Example The very large cost of MRI machines and their large size and specialized installation requirements acts as a deterrent to wider use of this technology. There is work underway that promises reduced costs and size of MRI machines, especially in the form of specialized machines for the scan of extremities such as wrists and ankles. The success of this effort could lead to wider use of the technology. Keywords: Magnetic Resonance Imaging, diagnostics, magnetic pulse 1. Introduction: The first Magnetic Resonance Image (MRI) was produced in 1973 and the procedure has now become a rapidly growing medical diagnostic tool for the medical profession. Over 30 million MRI procedures were done in the US in 2010 and new advances in technology is making specialized MRI procedures available for screening for a wider range of diseases and medical conditions each year. The human body can be considered to be essentially made up of three types of material; bone which is hard and made up of minerals such as calcium, soft tissue including muscles, flesh, blood vessels and organs such as liver, kidney, heart and lungs and fluids including blood and air. The field of diagnostic imaging started with the discovery of X-rays in 1895 by Wilhelm Rontgen. Even today, over two-thirds of medical diagnostics are done using X-rays. X-rays are ionizing radiations and the image is captured on a photographic film. X-ray images are good for viewing bones but the resolution for viewing soft tissue is often inadequate. The invention of Computed Tomography (CT) sought to address this limitation by using digital images in place of photographic plate and to manipulate the images for contrast and brightness to distinguish various types of soft tissue from each other (Ostensen, 2001). Ultrasound or ultrasonography was developed as the safer technology for viewing soft tissue and body fluids in the 1950s and 1960s. In this technique, sound waves of frequency between 3.5 MHz and 7 MHz are generated using a transducer or â€Å"probe†. Sound waves passing through human body get reflected when it passes from one type of tissue to the other. The reflected sound wave is picked by a microphone built into the same probe housing as the signal generator and a computer image of the internal tissue is created in real time. The medical professional can move the probe over the body area to see the changes in the image and also freeze the image for recording. Using ultrasound, it is possible to see images of blood flow through arteries and veins and see heart valves opening and closing. Ultrasound equipment is comparatively inexpensive and is safe as compared to X-rays. The interpretation of the ultrasound images however requires trained medical professionals and there is high risk of incorrect diagnosis (Ostensen, 2001). Ultrasound has no known side effects and is safely used even for examination of an unborn fetus. Ultrasound waves do not pass through air and are therefore not effective fo r examination of the stomach or the intestines. They also cannot penetrate bone and therefore are not used for areas with bone covering such as the skull. In obese patients, excess body fat sometimes makes ultrasound examination difficult as the reflected sound

Tuesday, August 27, 2019

Transfer Essay Example | Topics and Well Written Essays - 250 words

Transfer - Essay Example In real sense, I greatly hope to join university y because the courses offered at the university especially at higher levels, match my career aspirations. My current course is in line with my career path but I would like to go into specialization in my advanced years of study so that I become more competent in few areas of my choice. This is exactly the opportunity that university y offers and I strongly feel that I am better placed at university y as far as my career progression is concerned. Another reason I have the passion to transfer to university y is that policies and the reputation of the university suit my life’s visions. More specifically, I believe that there is more quality education in university y especially when it comes to teaching and research. When I receive the transfer, I will be able to come out of university y a more refined professional because I will be able to utilize my full potential. Besides, university y focuses more on nurturing professionalism than simply imparting academic knowledge on the students. For these reasons, I am fully convinced that university y will suit my lifestyle both as a student and as an aspiring professional. Therefore, I am humbly requesting for a transfer from university x to university

Monday, August 26, 2019

Belbins Theory Of Team Dynamics Essay Example | Topics and Well Written Essays - 500 words

Belbins Theory Of Team Dynamics - Essay Example In the context of the university, the student often felt sad when a classmate can no longer continue his or her studies. Or, the student often feel desolate when they have to end their group and go their own separate ways after working on a very long project. This separation can often affect their performance in the new group or the task that they are working as they are still attached to their former groups. Thus, the new group that they are with suffers performance deficit and or the process of group formation as inscribed by Belbin undergoes a tougher transition than it should. This brings to mind the valid concern on how to avoid the separation distress or separation dysfunction of group members after the adjournment process of their former group. How can this be effectively dealt with? An equally important consideration is the notion of how can we form groups that would perform but does not necessarily end in a stressful manner. On the first concern on how to avoid separation distress in the adjournment process of a group, it would be realistic to admit that group attachment cannot be avoided because it is an integral component of the group that made it effective in the first place. Teamwork and cooperation are founded on a good relationship and this good relationship is bonded by attachment whose degree may differ and thus, cannot be totally eliminated in a group. It does not mean however that team must end in a stressful manner. The stress associated with Belbin’s adjournment process can be mitigated by setting the expectations of the group members in the forming stage. This way, group members are aware that separation could be difficult and thereupon can take measures to mitigate its impacts such as saying goodbyes early, noting each other’s contact information and other measures intended to make the adjournment less stressful.

Sunday, August 25, 2019

Global Recession Effects on Emerging Economies Essay

Global Recession Effects on Emerging Economies - Essay Example This report stresses that global recession results to fluctuations in currency thus, affecting businesses that are mainly in the local economy. Local economies cater to the demands of the local market. They are dependent on the changes within their market. Local market demands are dependent on household and end-users budget and expenditures. When currency fluctuates, prices change affecting the production costs of companies and affecting the income and profit of end-users. This causes the market to have less demand due to buying power. This paper makes a conclusion that local economies thrive on the local market. If their market cannot afford the products the local companies produce then this will significantly affect the supply and demand, and the production and investment of the companies. With this, companies tend to resort to cost-cutting, trying to keep up with the fluctuations in currency and the lower demands of their market. In the end, if they cannot adapt and keep up to these changes, the local company will fail and eventually become bankrupt. Liberalization of the Chinese Market was remarkable for many reasons. It opened a new market for the Multinationals whose fortunes began sagging as demand in Europe had begun reaching saturation point. It offered a new manufacturing base for various industries. It opened new avenues of investments and finally it ushered in an era of relative peace as the threat of war and confrontation receded with the beginning of peace through trade partnerships. Trade that was ea rlier the reason of war had now became the agency of peace.

Saturday, August 24, 2019

Abrahams Promise by Michael Wyschogrod Essay Example | Topics and Well Written Essays - 2000 words

Abrahams Promise by Michael Wyschogrod - Essay Example This book is also an attempt by the author to bring Jews and Christians together and this he has done by raising logical questions that reflect upon their profound sameness rather than their deep differences. Kendall has not argued about the similarities or differences that Christians eagerly claim their Jewish faith roots, but he has endeavored a reason to consider that what escorts Jews to understand Christian theological concepts and why there is a need for the Christians to learn about treating minorities with dignity. This book reveals how the gap that has built over centuries should be bridged in order to gain an in depth understanding of both communities. Declaring the reason behind Gods love, Kendall points out what God expect from humans is the divine acknowledgement of their relation of their bodies with their souls, and since God believes in a free love, he has never limited humans. As a matter of fact, God himself is never limited to any particular genealogy. He had always possessed the right not to select Abrahams descendants as chosen ones or to replace his chosen ones with any other people not chosen. Kendall portrays Abraham, Issac and Jacobs God and presents before the readers a notion that God selected Israel as he loved Abraham descendants and chose them from among all groups. According to Kendall â€Å"God wanted a people who could not leave him† (Kendall, 2004: 50). For this reason Kendall points out that God favored and loved Israel in the same manner as a man loves a woman or his wife. What Kendall wants the reader to contemplate upon is the question he addresses that what caused God to choose a biological family rather than a community of faith (ibid). Wyschogrods perspective of the Jewish community is an answer to the above question, that suggests that God chose community of family is that of Abrahams descendants that elucidates Gods school of thought to

Friday, August 23, 2019

Healthcare law is not in truth mainly about the rights of patients nor Essay

Healthcare law is not in truth mainly about the rights of patients nor the duties of professionals. The main dynamic forces shaping modern healthcare law are economic rather than jurisprudential. Discuss - Essay Example However, recently, it has been brought to the attention of some concerned parties how much economic factors affect healthcare legislation in the UK. They allege that healthcare legislation is now being determined, not by patient rights, but by economic elements. This paper will discuss how healthcare law is not in truth mainly about the rights of patients nor the duties of professionals; it will discuss how the main dynamic forces shaping modern healthcare laws are economic rather than jurisprudential. Healthcare laws are passed with the primary objective of protecting and advocating for the rights of the patient. In the healthcare sector, the patient is the vulnerable party; his condition often makes him a party susceptible to the whims of the healthcare system and the healthcare professionals. In order to neutralize this situation, healthcare laws are in place. These regulations cover rights such as informed consent, right to refuse treatment, right to confidentiality of medical information and such other similar rights. The right to informed consent has been discussed throughout the course as the right of the patient to be properly notified and clarified about the medical procedures that will be undertaken on his person. The risks of these procedures should be properly narrated to the patient in his language. The medical professional informing the patient should ensure that the patient has understood the medical procedures and all that these entail and imply. The right to refus e treatment in essence is about the patient’s choice and his right to refuse medical attention or to refuse medical procedures to be undertaken on his person. The right to confidentiality of medical information is about the right of the patient to be secure in the knowledge that what he reveals to the medical professional in confidence will be kept that way by the

EMBA 560 Executive position week 4 discussion 4 Essay

EMBA 560 Executive position week 4 discussion 4 - Essay Example It brings to mind the famous words of Alfred Lord Tennyson: â€Å"Theirs not to make reply, Theirs not to reason why. Theirs but to do and die.† The poem â€Å"The Charge of the Light Brigade† is full of brio and bluster, but all the same the 600 soldiers it described all charged to their death without knowing why. Had their leaders explained why they had to make the charge, then the soldiers would have known that â€Å"someone had blunder’d† and probably would have declined to charge. Many executives avoid having to explain the â€Å"why† because it invites dialogue and discussion, it engages the followers to scrutinize the rationale of the action plan and to offer their own opinions, questions, and suggestions. It brings the followers to the level of the executive even for but the duration of the question’s consideration. Reasoning brings people to the common level that logic imposes on people. When a person explains why, he/she lays before his audience the thought process that led him/her to the action plan. The thought process is therefore laid bare to the audience for their consideration – and judgment. The judgment may be favorable, and it may be not. In case it is not, at least to some people, then the natural human behavior would be to ask questions which the person doing the explanation. If that person was in a position of leadership, and he could not defend his logic from the questions, then it reflects on his followers’ perception of him as a leader. 2.A link to the Martin Luther King "I Have a Dream Speech" can be found in the webliography.   The full speech is only 17 minutes long and well worth your time.   There are valuable lessons for executives in the structure and delivery of the talk.   Listen to and analyze the speech.   What makes this talk so inspiring? The speech itself is full of imagery, metaphors, and descriptive adjectives. An example of a metaphor is the likening of the Declaration of Independence as a check or promissory note, and continued discrimination to the default of the check. It also makes use of repeated phrases â€Å"Go back to –â€Å" , â€Å"I have a dream-â€Å", and â€Å"Let freedom ring –â€Å" mentioned repeatedly draws emphasis to specific points and images. The speech was effective in creating a sense of urgency (â€Å"Now†), and drawing emphasis on the immediacy of a full and impartial resolution. Structurally, the speech is effective because it first makes the case for the legitimacy of the colored people’s plea for equality, calling upon the promise of the Declaration of Independence declaring all men equal. Then while it praises the new militancy of the colored people, it also cautions against violence and distrust against white people and points out that freedom and equality for the blacks is necessarily linked to the enjoyment of freedom of the whites. After that, Dr. King creates a visio n of blacks and whites living harmoniously together as equals – his famous â€Å"I have a dream† series of proclamations. He quotes profusely from popular patriotic songs (â€Å"My country tis of thee†) and finally, he ends with a well-known Negro spiritual and makes it the high point of the entire speech. In the manner of delivery, Dr. King makes well-placed pauses, and in some places runs on from one sentence to the next to maintain momentum. The sentences were longer in the beginning and the imageries delivered with emphasis, and towards the end as momentum was built up the sentences became shorter and more

Thursday, August 22, 2019

Review on The Pursuit of Happyness Essay Example for Free

Review on The Pursuit of Happyness Essay The Pursuit of Happyness is a very moving film about a man and his quest for a better life. It is an inspiring case study of how many of the elements of happiness work together from relationships, to poverty, to positive mental attitude and determination. The movie is based on the true story of Chris Gardener, a struggling entrepreneur in 1980s San Francisco, with one driving ambition- to be a good father to his son. He tries to improve the family financial situation by purchasing and selling medical equipment, but the investment does not work out and the family sinks further into poverty. He sees his chance to make good after admiring a sports car on the street in the business district, where all the people seem happy. The car owner tells Chris he is a stock broker and anyone who is good with numbers and with people can be successful as a stock broker- even without a college degree. Chris uses his people skills and demonstrates the value of good relationships to get a chance at an internship where he must compete with 20 other candidates for 6 months for one paid position. His wife leaves him, he loses his apartment, bank accounts, credit cards, and has to spend time in jail, but all through it he is dedicated to keeping his son and pursuing his dream. The title, Pursuit of Happyness spelled with a y,comes from some graffiti at the daycare center and is also a reference to an essay written by a biracial man in the US shortly after the Declaration of Independence by Thomas Jefferson. The movie is beautifully acted by Will Smith and well written. It shows how people without money are often victimized and bullied by those who do have money and power. Yet Chris Gardener repeatedly demonstrates the importance of good relationships even with people who treat him badly. He shows the importance of knowing his strengths and using them, even in unconventional ways. His optimism turns into dogged determination as he demonstrates incredible persistence and creativity in his pursuit of happiness. The realism and emotional punch of the Christopher Gardner story makes this a moving and inspiring drama. Whether you are inspired to be grateful for your own circumstances or by the value of grace and determination, this movie is sure to show you something about happiness- its importance and how to get it. The Pursuit of Happyness teaches us a lot about the importance of virtues and strengths in our happy lives.

Wednesday, August 21, 2019

Heart Disease In Women Health And Social Care Essay

Heart Disease In Women Health And Social Care Essay Heart disease is one of the leading causes of mortality in women across the world Rollini. In the United States, cardiovascular disease Carey, specifically coronary heart disease, is the leading cause of death among both men and women [nih coronary heart disease, Rollini]. Death from a cardiac-related event is more common than death from all forms of cancer combined. However, even though more women than men die from coronary heart disease [Carey], heart disease itself is still commonly considered to be a male disease. Historically, medicine has utilized the man as the standard, even when treating women [xhyheri]. Therefore, there is the likelihood that it is under-diagnosed in women. This is because women suffer symptoms and respond to diagnostic testing differently than do men. Women also experience outcomes that are different than those men experience following intervention. Heart disease is a term that is frequently used interchangeably with the term cardiovascular disease. Cardiovascular disease commonly refers to those conditions that involve blocked or narrowed blood vessels that can subsequently lead to heart attack, stroke, or angina. There are other heart conditions that can affect the hearts muscle, beating rhythm, or valves, such as infections, that are also thought of as heart disease [mayoclinic]. Much of heart disease can be treated or prevented by making healthy lifestyle choices, such as a healthy diet, exercise, not smoking, and watching how much one drinks. As of present, few studies specifically examine heart disease in women. Women in fact represent less that 30% of study population in the majority of clinical trials [Rollini]. The research that has been conducted has indicated that women are less likely to be diagnosed or treated as well as men [xhyheri]. Additionally, studies have indicated that women react differently to drugs typically prescribed to cardiovascular disease. Additional research involving women, along with gender-specific analysis is needed. This would include the incorporation of more women into cardiac trials as well as into observiational studies, and the usage of statistical techniques that enable testing for certain sex interactions and provide information about differences in response to treatment that are sex-specific. Heart disease in women Heart disease is the foremost cause of morbidity and mortality in women. However it is often under-recognized by both patients and providers, as women believe that the major killer and therefore the disease they need to be on the lookout for is cancer. Additionally, heart disease is still in large part considered a male disease, and the main emphasis in heart disease research and clinical practice has gnereally focused on men (Stranges). However, a major shift has occurred recently, with greater recognition of the clinical significance of cardiovascular disease in women [1,5 in Stranges]. The realization of the importance of cardiovascular disease in women has also been accompanied by a growing awareness of differences in risk factors, treatment, preventative strategies, and prognosis of the disease [1, 5, 12-15 in Stranges] between the genders. Some cardio-metabolic risk factors are either unique or more prominent in women than they are in men [5]. For instance, preeclampsia is lined to an increased risk of various cardiovascular outcomes later on in life [17]. Additionally such conditions as autoimmune diseases and depression can contribute in a disproportionate way to cardiovascular risk in women [5, stranges]. The prevalence of a number of traditional risk factors are also different for women than they are for men. For example, the prevalence of diabetes mellitus is greater among women in the U.S., primarily as a result of a decrease of level of physical activity as well as a difference in longevity between the genders [2, 5,18 in Stranges]. In fact, type 2 diabetes and impaired glucose tolerance are recognized as very strong risk factors for cardiovascular disease in women [19]. Additionally, type 2 diabetes and impaired glucose tolerance may increase the risk of recurrent cardiovascular events following the first acute myocardial infarction, particularly in women [20 stranges]. Hypertension also tends to be higher in older women, which contributes to the greater morbidity and mortality in women from stroke than in men [2, 21 Stranges]. Additionally, atrial fibrillation is a primary risk factor for ischemic stroke in women [5, 21], which has led to the development of management guidelines designed to prevent stroke in women [22]. Epidemiology Heart disease is one of the leading causes of mortality across the world. In the United States, a woman dies from a heart related episode every minute [Rollini], and despite declining trends seen in many countries over the past 40 years in both men and women, cardiovascular disease is still the leading cause of mortality in both men and women [1-3 stranges]. Cardiovascular disease in fact is the cause of a greater number of deaths than all other chronic conditions combined, including cancer, neurodegenerative and respiratory diseases, and accidents [2]. Approximately 1 in every 3 women (34.9%) in the U.S. has some kind of cardiovascular disease. The percentage for men is slightly higher at 37.6% [zhang]. Approximately 1 in every 2.7 women will die of a cardiovascular disease; this is compared with approximately 1 out of every 4.6 women who will die of cancer [1 in zhang] Although age-adjusted mortality rates of cardiovascular disease are higher in men than in women, the total number of cardiovascular disease related deaths has been consistently higher in women than in men for the past two decades, primarily due to a longer life expectancy as well as a larger proportion of elderly women [1,2 stranges]. Additionally, in the United States more hospitalizations occur for heart failure and stroke in women as compared to men [2] Recent evidence indicates an increasing trend in coronary heart disease mortality in younger women. In U.S. women ages 35 44 years of age, coronary heart disease mortality rates have increased an average of 1.3% each year since 1997 [4]. These trends are most likely driven in part by the obesity and diabetes problem in the U.S., but other contributors include a decrease in physical activity and an increase in the prevalence of hypertension [4]. The escalation in prevalence of large scale cardiovascular disease risk factors in younger adults, primarily hypertension and obesity, as well as the leveling off or possible reversal of cardiovascular mortality trends is happening in the U.S. as well as in areas around the world, including the Mediterranean and Asia. These regions are classically associated with healthier dietary choices and lifestyles (6 -11 stranges] Specific to the disease burden and the specific aspects of cardiobascvular disease in women, the American Heart Association developed evidence-based guidelines specifically for women [12 15 stranges]. The most recent update of these guidelines was published in 2011 [12] and represented a major contribution to the field of cardiovascular disease management. The focus of the guideline shifted from evidence based to effectiveness based, and considered both harms/costs and benefits of preventive intervention [12]. This shift indicates a major evolution from the guidelines revised in 2007, which were based mainly on the clinical benefits of intervention for cardiovascular disease prevention in women [15]. Additionally, the 2011 guidelines introduced ideal cardiovascular health as the lowest risk category, meaning that the presence of ideal levels of cardiovascular risk factors and adoption of a healthy lifestyle is most likely to be associated with favorable outcomes and a nicer quality of life, as well as increased longevity [50]. However, only a very small percentage of U.S. women will be classified as being at ideal cardiovascular health [51]. Differences in short term prognosis and clinical presentation between men and women are evident with cardiovascular disease. Especially in younger women, higher fatality rates have been seen during the 30 days first following an acute cardiovascular event, as compared with younger men [31, 32 stranges]. There has also been an ongoing debate on the reasons cardiovascular disease is managed differently in men and women [33-35], although there has been an improvement in the quality of care and in outcomes for women in recent years who have been hospitalized for cardiovascular disease [36 stranges]. There is some belief that gender disparities are the result of lower awareness of cardiobascular disease risk in women, as well as a delay in emergency services access. However, the gender gap has been reduced over time [37 stranges]. There is still work to be done, though, since very few clinical trials publish results that are sorted by sex. Additionally, researchers frequently utilize historical data in comparing clinical characteristics and treatment in both men and women, and many early trials had an upper cutoff age of 65 years, which excluded many women, since women develop cardiovascular disease on average ten years later than do men. Also of concern is that the demographics of the U.S. and in fact the world are changing, which will mean that practitioners must consider a greater diversity of patients. Added to the well-known classifications of race and geographic origin as well as ethnic origin, there are other facets of diversity that must be considered. These include age, language, literacy, disability, socioeconomic status, religious affiliation, occupational status, and culture. Not only do these factors affect how cardiovascular disease presents and progresses, they also often affect the level of care the individual receives. A report done by the Institute of medicine states that differences in treatment in women do exist even when controlling for such factors as comorbidities and insurance status [52 from mosca]. Pervasive disparities in the treatment of cardiovascular problems are a serious public health issue in the U.S. in spite of the marked declines in mortality that have been observed on a national scale over hthe past several decades. These disparities in particular have an adverse impact on the clinical outcomes and quality of life for African American and Hispanic women, a fact which must be recognized by practitioners. Care that is sensitive to cultural difference includes the revision of healcare delivery to meet the specific needs of a patient population that is incredibly diverse. Tehrefore diversity in this context of healthcare means that all individuals must receive equitable care, regardless of any barriers that may exist [57=59 mosca]. The main cause of these barriers to equitable care includes lack of understanding about patients health beliefs, cultural values, and frequently the inability to communicate symptoms accurately in what to many of these women is a foreign language [53-55 mosca] General guidelines for diagnosis and treatment apply across all groups of women; however, it is important to note that risk factors such as hypertension are more prevalent in African American women. Also, diabetes mellitus is more prevalent in Hispanic women [6 from Mosca]. Most notably, the most coronary heart death rates and the greatest overall cardiovascular disease morbidity and mortality occur in Aftrican American women. This means that mortality from cardiovascular events in these women is more similar to those seen in men than those seen in other groupings of women. This simply underscores tat need for greater preventative efforts in some groupings of women as well as a different approach taken to diagnosis and treatment of cardiovascular disease, an approach more tailored to each specific grouping. Deaths from cardiovascular disease have decreased in all groupings of women. However, Hispanics have the lowest percentage of deaths from cardiovascular events (21.7%) as comared with non-Hispanics (26.3%) [62 mosca]. Hispanics also have a longer life expectancy at 83.1 years compared with the 80.4 year life expectancy for non-Hispanic white women and the 76.2 years for non-Hispanic black women [63 mosca]. This means that cardiovascular complications due to age are a greater consideration for Hispanic women. Age is not only a consideration for Hispanic women, however. The life continuum of women frequently reflects different events that are approached with different levels of stress both physical and mental than those that affect men. These events include such conditions as pregnancy. Therefore, it is important to consider all facets of diversity when practitioners care for women with cardiovascular disease, to avoid a disparity in care [64-66 mosca]. Etiology Cardiovascular disease is largely caused by risk factors such as unhealthy lifestyle choices. Many of the causes for most forms of cardiovascular disease can be treated or prevented by making healthy lifestyle changes. These causes include: Pathophysiology of heart disease It is of utmost importance for the practitioner to recognize that womens hearts are different from mens hearts. Whiel this area of study is somewhat new, it is known that women have smaller herats as well as smaller arteries than men. Researchers from Columbia University and NY Presbyterian also believe that women have a different internal rhythmicity to the pace of their hearts, which in general causes the heart of a woman to beat faster than the heart of a man. The researchers also belive that a womans heart may take longer to relax following each beat. Additinoally, some surgeons have hypothesized that the reason that women have a 50% higher chance of dying during heart surgery as compared to men may be related to a fundamental difference in the way a womans heart works. These differences may also be linked to the fact that women are more likely than are men to die after their first myocardial infarction [Ricciotti]. Approximately 25% of men die in the first year following their f irst myocardial infarctino, compared with 38% of women [Krupa online]. Women are also approsimately twice as likely to experience a second myocardial infarction within 6 years of the first. Additionally, women are approximately twice as likely to die following bypass surgery. From Ricciotti online Heart disease itself therefore affects the hearts of women in different ways than it does men. Following a heart attack, a womans heart is more likely to sustain its systolic function effectively. C. Noel Bairey Merz, the Director of the Womens Heart Center at Cedars-Sinai Heart institute, has suggested that this reflects that cardiovascular disease affects the microvasculature in women, while in men it affects the microvasculature [Krupa]. Conventional research has indicated that the most prevalent form of cardiovascular disease is coronary artery disease, where plaques narrow or block the major arteries of the heart, which in turn cuts off the supply of oxygen to the heart. The duration and severity of the impairment determines the severity of the acute event unstable angina or myocardial infarction can result. This ultimately affecst the hearts ability to pump blood correctly. However, Bairey Merz found that womens hearts were much less likely than were mens to lose the ability to pump blood following a myocardial infarction. Additionally, women were much less likely to present with coronary artery disease that was obstructive. This led Bairey Merz to conclude that in women the oxygen deprivation to the heart and the ensuing damage is more likely to happen when the small blood vessels become dysfunctional, as opposed to the major arteries [Krupa-online]. Bairey Merz further believes this is a major reason why women are misdiagnosed or suffer adverse heart events, beause practitioners typically look for the patterns of cardiovascular disease progression that are present in men as opposed to searching for patterns that are present in women. The Womens Ischemic Syndrome Evaluation (WISE) study concurred and has indicated that women may experience chest pain and abnormal stress testing even when there is no critical, flow limiting lesion (>50% luminal stenosis in a coronary artery) present in one of the major arteries. In this study, 60% of women who underwent coronary angiography did not have a lesion present. Even without experiencing critical blood flow problems, women in the study without lesions experienced persistent symptoms. The persistence of the symptoms, combined with abnormal stress testing results was therefore attributed to endothelial dysfunction and disease affecting the microvasculature. A number of factors may contribute to endothelial dysfunction and disease affecting the microvasculature. Hypertension, LDL cholesterol, diabetes, the chemicals in tobacco, circulating vasoactive amines, and infections can all contribute. Women are not beyond danger regarding plaque and disruption of forward blood flow in the arteries, however. This is primarily because women have smaller coronary arteries than do men, even after correcting for total body surface area [7 Kusnoor]. Therefore, anything that affects flow may prove to be critical. Additionally, women are two times more likely than men to have plaque erosion with subsequent blood clot formation [8 kusnoor]. From Kusnoor online bookmarked Risk Factors From Schenk-Gustaffsen Risk factors for heart disease are roughly the same for both sexes; however, gender specific differences are present (Rollini). There are some unique risk factors that exist for women; older age at presentation is a major risk factor, as women are more likely to suffer from comorbities, including diabetes and hypertension. Given the fact that 6 out of every 10 deaths [schenk] from cardiovascular disease in women can be prevented, it is extremely important to understand the risk factors associated with the disease in women. According to the InterHeart study [2 schenck] there are nine factors that are responsible for 90% of all cardiovascular disease cases. These factors are: Smoking Stress Dyslipidemia Diabetes Hypertension Obesity Poor diet, particularly one that does not include sufficient intake of fruits and vegetables Physical inactivity Consumption of alcohol in excess The same cardiovascular risk factors have been used in risk calculations for the past 40 years, despire increasing knowledge regarding gender differences and the disease. Ridker et al [schenck, find ref] suggested in 2007 to use the Reynolds scoring system for women. This suggestion is based on a 10 year study of data from the Womens Health Study for cardiovascular events in 25,558 women, all over 45 years of age. The conclusion was that this scoring system predicted cardiovascular disease risk in women better than classical scoring systems. Modifiable Diabetes mellitus is one of the most important risk factors, and coronary heart disease mortality is 3 5 times higher in those women who are diabetic as compared to those who are not diabetic. In contrast, the risk is only 2 3 times higher in men who are diabetic. Women also have a 3 5 times higher chance than men of developing cardiovascular disease to begin with [30 schenck]. Higher glucose levels as well as insulin resistance serve to counter the protective effects of estrogen, which places women at this higher risk [Johnson]. Cardiovascular events are the primary cause of death, particularly in type II diabetes. The Nurses Health Study indicated that coronary heart disease mortality in women who have diabetes was 8.7 times higher than non-diabetics [31 schenck]. An additional danger is that women who are diabetic develop cardiovascular disease earlier, at approximately the same age men do. Why this is the case is currently unknown [33]. Diabetes is largely preventable or well- controlled through making healthy dietary and fitness decisions, sometimes in tandem with medication. Cigarette smoking is a very significant risk factors for coronary heart disease in women. Smoking in women prompts more negative cardiovascular and lung consequences than does smoking in men. One potential reason for this may be that the dimensions of the coronary arteries and the lungs are smaller in women than in men; therefore, a woman smoking the same amount as a man would do more damage to her body. Women who are less than 55 years of age have 7 times increase in risk attributable to smoking than do men, and the increase in risk depends on dose. It is undisputable that smoking predisposes the individual to atherosclerosis [24, 25 schenck]. The Nurses Health Study, which examined more than 120,000 haelthy nurses, indicated that only 4 5 cigarettes a day nearly doubled the risk, and 20 cigarettes a day compounded the risk 6 times [26 schenck]. Smoking has declined a bit in men; however smoking in women has not declined at the same rate, particularly in younger women. This can lea d to significant vascular problems later on in life. Further, individuals who are routinely exposed to second hand smoke see a 25% increase in the risk of developing cardiovascular disease. Therefore, it is not simply direct smoking that causes the problem. Additionally, smoking combined with other factors such as use of contraceptives containing estrogen multiplies risk for cardiovascular events and for clot formation [ROllini]. Hormonal contraception is in fact contraindicated for women over 35 years of age who smoke as a result of the multiplied risk. Refraining from smoking lessens the risk of developing heart disease and helps reduce potential cardiovascular risk factors. Alcohol consumption poses a risk for the development of cardiovascular disease. A moderate intake may be protective to the heart, but too much alcohol is harmful [45, 46 schenck]. The type of alcohol consumed is not as crucial as are the drinking patterns. Low to moderate daily intake may be protective, whereas conversely binge drinking can be harmful to the heart. If a patient has already experienced a first myocardial infarction, it is not necessarily a bad thing to continue drinking moderately. However, it is also not necessarily recommended that patients start drinking in search of the protective benefits of alcohol consumption following a first myocardial infarction [schenck]. Light to moderate drinking is defined as defined as one standard drink for women per day and two per day for men. The difference exists because men and women metabolize alcohol differently; specifically women metabolize slower than do men. A standard drink is defined as 12 grams of alcohol; this is equival ent to 15 cl of wine. It is well established that there is an association between LDL cholesterol and an increased risk of cardiovascular disease. Individuals who reduce their LDL cholesterol also reduce their risk for cardiovascular disease. Further, this reduction in combination with raising their HDL cholesterol serves to further reduce risk. A study conducted by the Lipid Research Clinic indicated that low HDL cholesterol in women was the most significant predictor of death from ischemic heart disease [12 schenck]. It has been shown that having low HDL levels affects women more than it does men [16 schenck], so it is important that practitioners encourage the reversal of low HDL. Hypertension is also a risk factor for cardiovascular disease. A meta-analysis that included data from more than 1 million adults ages 40 69 indicated that an increase of 20 mmHg systolic or 10 mmHg diastolic in an individuals normal blood pressure doubles the mortality from coronary heart disease [22 schenck]. There is a 3 times increase in coronary heart disease as well as stroke in women with >185 mmHg systolic when compared to women who are less than 135 mmHg systolic [23 schenck]. The way hypertension is treated is currently the same in both emn and women. Most of the time, pharmacotherapy and lifestyle changes is the preferred treatment. A sedentary lifestyle and obesity pose a significant risk as well. Obesity is more common in women (35.5% ) than in men (32.2%), and 27% of women are obese [1 schenck]. People who are active and regularly exercise their heart muscle are at a much lower risk of developing heart disease. In particular, obese women are more likely to also have metabolic conditions such as polycystic ovarian syndrome or Syndrome X than are lean women, which multiplies risk [Johnson]. Exercise and physical fitness play a big role, and lack of physical activity is a major risk factor for developing cardiovascular disease. One study found that less fit individuals experiences a 4.7 times increased risk of stroke and myocardial infarction, independent of other risk factors [37 schenck]. The beneficial effects of exercise are not as great in women as they are in men; women experience smaller increases in HDL resulting from similar exercises as men [38 schenck]. The Nurses Health Study has indicated though, that two aspects are particularly beneficial to women, namely that brisk walking delivered the same benefits as did vigorous exercise, and women who had previously been sedentary experienced benefits that were similar to those who had exercised earlier in life. This means that it is better to exercise late than to never do so. The recommended amount of exercise is 30 minutes of exercise daily. Diet. A poor diet is a major risk factor for the development of cardiovascular disease. The Mediterranean diet has been shown to have beneficial effects on alleviating cardiovascular disease risk. The diet has a high proportion of fruits and vegetables, and has a positive impact on total cholesterol, LDL cholesterol, blood pressure, and myocardial infarction [47 schenck]. One study of 600 men and women who were randomized into either a group using the Mediterranean diet or a control group indicated that after 27 months a marked difference was found in mortality and morbidity for cardiovascular disease as well as total mortality in favor of the Mediterranean diet [48 schenck]. The mechanisms behind this are multiple, with the recommendation that diet always be combined with other changes to lifestyle, such as exercise or medication. The effects are likely the same in women as in men, but there has not been much gender specific research into why the Mediterranean diet proves beneficial [49, 50 schenck] Depression serves as a risk factor for the development of cardiovascular disease, particularly if the patient is also taking antidepressant medication. Mood in general is a risk factor, particularly if the individual experiences a high level of stress on a consistent basis. As compared to other risk factors, psychosocial variables are much more difficult to define or to measure objectively. Nonetheless, there are several different aspects within the broad definition of psychosocial factors that are currently associated with increased risk of myocardial infarction. These aspects include work and family stress, lack of control, low socioeconomic status, negative life events, and a poor social support system. These aspects, along with depression, affect the risk of ischemic heart disease as well as the prognosis. There are several studies that show a clear correlation between stress and cardiovascular disease. One study indicated that family stress including marital stress increases t he risk of ischemic heart disease [41 schenck]. Another study indicated that work stresses as well as home stresses were more common in those patients who had suffered a myocardial infarction, and that stress represented 30% of the individuals total risk [42 schenck]. Where depression is involved, it has been found that both women and men tend to get more depressed following myocardial infarction [43, 44 schenck]. This increases the risk of a second myocardial infarction. It is important to note regarding depression that more women experience depression than men, and it is therefore a more important risk factor in women. Recent evidence indicates that sleep deprivation and disturbances may be associated with cardiovascular disease, particularly in women [23 stranges]. Three independent studies have indicated an association between increased hypertension and sleep deprivation. This phenomenom occurred only in women [24 26 stranges]. These findings are particularly significant because sleep disturbances and deprivation are more common in women than in men in both developed as well as developing countries [27, 28 stranges] Non-modifiable Genetics. Congenital heart disease is something the individual is born with. However, an individual may also have a genetic predisposition to develop certain cardiovascular problems, as seen through examining family history of heart disease. In the latter, a predisposition does not mean the individual is guaranteed to develop the specific cardiovascular problem they are predisposed to; healthy lifestyle choices such as eating well, not using alcohol to excess, not smoking, and exercising regularly can go a long way toward fighting genetic predisposition. It is interesting to note that simply having a family history of the disease can lead to stress and disruption in mood for some individuals, both risk factors for cardiovascular disease. In one study that examined data collected from 60 women and 31 men who averaged 21.4 years of age it was found that a family history impacts stress responsivity, which can contribute to future heightened cardiovascular disease risk [wright]. Menopause poses a risk for coronary heart disease in women because the reduced production of estrogen leads to worsening of coagulation, vasculature, and the lipid profile. Early menopause in particular is a known risk factor; results of a study utilizing the Womens Ischemic Syndrome Evaluation (WISE) indicate that estrogen deficiency poses a very strong risk factor for coronary heart disease [8, from Rollini] Endothelial dysfunction frequently occurs post-menopause. Its detection can precede more overt diseases such as hypertension and diabetes. One study indicated [13 Rollini] of women without hypertension development of endothelial dysfunction was linked with hypertension. Over the next four years. Another study indicated [14 Rollini] and examining a cohort ofeuglycemic women who were not obese, marked endothelial dysfunction at the baseline was linked with development of diabetes. Also over the next four years. Further, in postmenopausal women with hypertension changes in endothelial function that occur as a result of antihypertensives may be used to identify women who have a better prognosis [15 Rollini]. Metabolic syndrome is a complicated condition that involves hypertension, low HDL levels, elevated LDL levels, abdominal obesity, insulin resistance and elevated triglycerides. Metabolic syndrome has a marked roll in increasing the risk of cardiovascular disease, particularly in menopausal women. Further, there is a strong link between metabolic syndrome and depression. Depression is a commonly known risk factor for cardiovascular disease. Age. As women advance in age, they are more likely to develop cardiovascular disease, and in particular it is more likely that women will have one or more comorbidity associated with cardiovascular disease risk, such as diabetes or obesity. Kidney disease increases the risk of cardiovascular disease in women more than men. Resting heart rate is an independent risk factor for patients who have known cardiovascular disease as well as for those with acute myocardial infarction [133-135, 136-140]. Women possess a lower resting sympathetic output than do men, but after an uncomplicated acute myocardial infarction, women have greater sympathe

Tuesday, August 20, 2019

FTSEs Capital Structure and Profitability Relationship

FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance. FTSEs Capital Structure and Profitability Relationship FTSEs Capital Structure and Profitability Relationship The capital structure of a firm has long been a much debated issue for academic studies and in the corporate finance world. It is the way a firm finances its assets through some combination of equity, debt, or hybrid securities the composition or structure of its liabilities. In reality, capital structure may be highly complex and include various sources. The question whether capital structure affects to the profitability of the firm or it is affected by profitability is crucial one. Profitability and capital structure relationship is a two way relationship. On the one hand profitability of firm is an important determinant of the capital structure, the other hand changes in capital structure changes affect underlying profits and risk of the firm. Traditionally it was believed that the debt is useful up to certain limit and afterwards it proves costly. There is an optimum level of capital structure exist up to that level increasing debt will improve profitability, beyond that it will reduce profitability. In 1945, Chudson carried out an extensive study that implies the possibility of a relationship between the capital structures practised by a firm with its profitability. The question he endeavours to answer was that, à ¢Ã¢â€š ¬Ã…“In what way does the structure of assets and liabilities of a firm reflect the kind of industry in it is engaged, its size and level of profitability?à ¢Ã¢â€š ¬? In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. It states irrelevant of capital structure in a perfect market to its value, hence, how a firm is financed does not matter. The MM propositions forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it is based on perfect market assumptions those are not prevailing in practice. The matter of capital structure has gained much interest and controversy, since the MM Propositions which assert that the value of a firm is independent of its capital structure. The hypothesis proposed by MM created tidal waves in the corporate finance academia. Different theory such as packing order theory and agency cost theory were proposed. Various aspects of capital structure have been put to test and researched by so many researchers. The question is if the capital structure is really irrelevant in a real market and whether a companys profitability and hence value is affected by the capital structure it employs? If not, why capital structure is relevant and which factors make the leverage matter? Apart from profitability, some other factors such as bankruptcy costs, agency costs, taxes, and information asymmetry are considered in determination of capital structure. This study aims and attempts to extend the knowledge of capital structure and profitability relationship in listed UK companies. This analysis can then be extended to look at whether there is in fact an optimal capital structure exist the one which maximizes profitability and hence the value of the firm. 1.1 Context and relevance of the Study The topic of capital structure has been widely explored, though the study is relevant in the different time period and different context to find out whether the evidence concerning the capital structure issue and its various aspects are relevant to a given set of companies in a given period. Given this significance, current study attempts to understand and research on capital structure and its effect on profitability, of large firms in UK in the present context for a period of five years (2005 -2010). Thus, this study attempts to contribute to the research on capital structure in the recent period for large publicly traded companies on FTSE 100. 1.2 Research Objectives The present study is aimed at achieving one main and two secondary objectives. The main objective is to scrutinise the relationship between the capital structure and profitability of the large publicly traded UK firms and to ascertain whether a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability is related with its capital structure or not based on the empirical evidence generated. Secondly, this study would attempt and investigate to determine if any optimal capital structure exist among the sample of FTSE 100 listed companies. Third objective is to find out any trend of capital structure being exhibited by the UK companies. 1.3 Research Questions and Hypothesis The above objectives are translated in two research question. The main research question is that whether a firms profitability is related with its capital structure or not based on the empirical evidence generated. Hypothesis The first questions can be presented as following hypothesis. The present study shall be undertaken to evaluate this hypothesis based on the tests of the null hypothesis. H1: The profitability of a company is significantly correlated to its capital structure. H0: The profitability of a company is not significantly correlated to its capital structure. The secondary objectives of this study are translated in the determinant question regarding the optimality and trend of capital structure. The second question, will be discussed descriptively is that, Is there an optimal capital structure exists among or any trend of capital structure being exhibited by FTSE 100 listed companies? 1.4 Scope and Limitations of the Study Scope This is an academic study that would shed some light on the matter of capital structure which has been discussed in various different perspectives since the MM propositions. The significance of this study is that it further enhances the research into capital structure of listed firms in UK. Profitability and Capital structure relationship is an ongoing issue and its relevance may change in different period because of the changes in macro and micro economic factors. For practitioners and corporate finance people such as finance executives, controllers and directors of listed firms, this study is relevant and of much interest to get insight of the capital structure and whether it has any effect on the profitability. Limitations The findings of this study will be limited from the following aspects: This study included only FTSE 100 listed firms on the London Stock Exchange (LSE). Hence, its findings were not applicable for all the listed companies in UK. The sample of listed companies for this study included only firms with at least five years of financial data. Firms which are younger than five years or whose five year data could not be obtained will not be included in this study. The study excludes financial utility and other highly regulated industry to avoid any distortions in the result due to industry specific requirements. The cross sectional correlation and regression analysis will be performed using excel formula. CHAPTER 2 LITERATURE REVIEW The various capital structure theories are developed by corporate finance academia for analysing how a firm could combine the securities to maximise its value. The Modigliani and Miller (MM) proposition (1958) were introduced under the perfect capital market assumptions. It refers to an ideal market where there are no taxes at both corporate and personal level, no transaction costs, no agency costs as and managers are rational. It further assumes that investors and firms can borrow at the same rate without restrictions and all participants have access to all relevant information. Thus it provides conditions under which the capital structure of a firm is irrelevant to total firm value. Most of studies focus on the determination of capital structure i.e. to what extent each of the assumptions in the MM model contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. Many theories such as the pecking order theory, the trade-off theory and the agency cost theory have been developed. Though much attention was not given to one major aspect of the capital structure, which is the impact of the value of the firm. The value comes from the future cash flow i.e. profit of the firm. Thus capital structure affects value of the firm through the profitability and hence there is a direct relationship between the capital structure and profitability of the firm. Capital Structure The term capital structure can be defined as: à ¢Ã¢â€š ¬Ã…“The mix of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s permanent long-term financing represented by debt, preferred stock, and common stock equity.à ¢Ã¢â€š ¬? (Van Horne Wachowicz, 2000, p.470) It can be defined as à ¢Ã¢â€š ¬Ã…“The mix of long-term sources of funds used by the firm. This is also called the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s à ¢Ã¢â€š ¬Ã…“capitalizationà ¢Ã¢â€š ¬?. The relative total (percentage) of each type of fund is emphasized.à ¢Ã¢â€š ¬? (Petty, Keown, Scott, and Martin, 2001, p.932) One of the exhaustive and inclusive description was given by Masulis (1988, pl): à ¢Ã¢â€š ¬Ã‹Å"Capital structure encompasses a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s publicly issued securities, private placements, bank debt, trade debt, leasing contracts, tax liabilities, pension liabilities, deferred compensation to management and employees, performance guarantees, product warranties, and other contingent liabilities. This list represents the major claims to a corporationà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets. Increases or reductions in any of these claims represent a form of capital structure change.à ¢Ã¢â€š ¬? However in this study, for the sake of simplicity, the capital structure will be analysed in term of debt and equity in line with other prominent capital structure studies and theories restricted to the debt equity mix. Profitability The term profitability is a very common term in the business world. It refers to an all round measurement and indicator for a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s success. Profitability can be defined as the ability of a firm to generate net income or profit on a consistent basis. It is often measured by price to earnings ratio. The accounting definition of profit can be given as the difference between the total revenue and the total costs incurred in bringing to market the product i.e. goods or service. Hence, profitability had come to mean different things for different people. It can be defined and measured in several ways depending on the purpose. It is a generic name for variables such as net income, return on total assets, earnings per share, etc. though the simplest and common meaning of profitability is the net income. 3.1 Early Study on Capital Structure by W A Chudson One of the earliest comprehensive researches into capital structure of business firms was done by Chudson Walter Alexander (1945) on a cross section of manufacturing, mining, trade, and construction companies in the US from the year 1931 to 1937. Although it has been more than two third of a century, that study is still relevant today as before due to the seven questions which he endeavoured to answer. Out of those questions the relevant to this study are as follows. In what way does the structure of assets and liabilities of a given concern reflect the kind of industry in which a concern is engaged, the concernà ¢Ã¢â€š ¬Ã¢â€ž ¢s size and level of profitability? Are there any elements in the corporate balance sheet, either on the asset or the liability side, whose range of variation is so narrow that it is possible to speak of a à ¢Ã¢â€š ¬Ã…“normalà ¢Ã¢â€š ¬? pattern of financial structure? The questions posed by Chudson could be interpreted into the research questions pertinent to this study which are the relationship between profitability and capital structure, the existence of an optimal capital structure, and also the trend of capital structure being practised by a sample of firms. Chudsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s research showed there were undisputable relationships between corporate financial structure and the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s profitability. As far as this study is concerned, Chudson had successfully proved the relationship between the profitability of a company with various capital structure variables including debt and equity capital. 3.2 M M Propositions In 1958 Merton Miller and Franco Modigliani in their famous Miller-Modigliani (MM) propositions put forward the net operating income approach of and demonstrated that the capital structure is irrelevant in a perfect market. Accordingly, the first Proposition holds that the value of a firm is independent of its capital structure. While the second proposition stats that when first proposition held, the cost of equity capital was a linear increasing function of the debt/equity ratio. As miller wrote subsequently these propositions implied that the weighted average of these costs of capital to a firm would remain the same no matter what combination of financing sources the firm actually chose. (Miller, 1988) In 1962, Barges tested and evaluated the MM propositions predominantly on the validity of the hypothesis that the cost of capital to the firms is unaffected by capital structure. According to Barges (p. 143): à ¢Ã¢â€š ¬Ã…“With respect to the empirical methods employed by MM it was found that, under very frequently encountered conditions, their methods will result in tests which are biased in favour of their propositions and biased against the traditional views.à ¢Ã¢â€š ¬? Barges had empirically proved the existence of some weaknesses in the research design and methodology of Modigliani and Millerà ¢Ã¢â€š ¬Ã¢â€ž ¢s study and concluded that (p. 147) à ¢Ã¢â€š ¬Ã…“Thus, on the basis of the evidence presented herein, the hypothesis of independence between average costs and capital structure appears untenable.à ¢Ã¢â€š ¬? Subsequently many studies were conducted with focus on the determination of capital structure and many theories were presented. 3.3 Profitability and Leverage theories Since MM propositions presented, many studies were conducted by releasing MM assumptions focusing on the extent to which each of the assumptions contributes to the determination of the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s capital structure. All these theories explains the relationship between leverage and the value of the firm and hence profitability of the firm. There are various theories in order to further explain this relationship. Nevertheless, these theories are actually based on asymmetric information (Myers, 1984), tax deductibility (Modigliani and Miller, 1963; Miller 1977), Bankruptcy costs (Stiglitz, 1972; Titman, 1984) and agency costs (Jensen and Meckling, 1976; Myers, 1977). Two main theories are the pecking order theory and the trade off theory. Pecking Order Theory The Pecking Order Theory is based on information asymmetry between management and investors. So, the stock price of a firm may not reflect correct value of the firm. Myers and Majluf (1984) and Myers (1984) suggest that management issue the security which is overvalued and therefore, undervalued firms tend to avoid issuing equity. They argue that in imperfect capital markets, leverage increases with the extent of information asymmetry. They provided theoretical support to Donaldsonà ¢Ã¢â€š ¬Ã¢â€ž ¢s (1961) findings that firms prefer to use internally generated funds as a financing source and resort to externals funds only if the need for funds was unavoidable. According to (Myers 1995), the dividend policy is à ¢Ã¢â€š ¬Ã…“stickyà ¢Ã¢â€š ¬? and the firms prefer internal to external financing. Firms prefer using internal sources of financing first, then debt and finally external equity obtained by stock issues. Therefore, asymmetric information models seldom point towards a well-defined target debt ratio or optimal capital structure. All things being equal, the more profitable the firms are, the more internal financing they will have, and therefore we should expect a negative relationship between leverage and profitability. The various studies such as Ross (1977), and Myers and Majluf (1984), Harris and Raviv, 1991; Rajan and Zingales, 1995; Booth et al., 2001have supported this relationship that is one of the most systematic findings in the empirical literature. Agency Costs Theory The Agency Costs Theory (Organizational Theory of Capital Structure) emphasize that capital structure was influenced by conflicts between shareholders and managers, and between debt holders and equity holders. Major study into this area was done by Jensen and Meckling (1976) that showed managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ natural tendency to extract too many perquisites and stresses on self-interested behaviour. Obviously, agency costs would increase as the managersà ¢Ã¢â€š ¬Ã¢â€ž ¢ personal ownership stake in the firm decreases. This supplied an argument for debt financing and against à ¢Ã¢â€š ¬Ã‹Å"publicà ¢Ã¢â€š ¬Ã¢â€ž ¢ equity which was contributed by non management investors who cannot monitor management effectively. Fama and Miller (1972), using agency cost theory, proved that leverage was positively associated with firm value. Firms with longer credit histories would have lower cost of debt. The Trade of theory The trade-off theory is based on the considerations of benefits and the costs of debt. This theory argues that firms optimise their capital structure by trading the tax deductibility of interests, bankruptcy costs, and agency costs. This theory is consistent with traditional approach of capital structure. This theory leads to an opposite conclusion. Accordingly if the firms are profitable, they should prefer debt to benefit from the tax shield. Further as the past profitability is a good proxy for future profitability, profitable firms can borrow more because the likelihood of paying back the loans is greater. However after a certain level of leverage, the profitability and the value of the firm will reduce due to interaction of bankruptcy costs and agency costs. 3.4 Various Studies on Capital Structure As the issue of capital structure gained prominence and interest, a number of studies had been done over the years to explore the relationship between capital structure and a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s various characteristics e.g. growth opportunities, non-debt tax shields, firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s volatility, asset systematic risk, asset unique risk, internal funds availability, asset structure, profitability, industry classification, and firm size. This study is concerned particularly on the relationship between capital structure and profitability. Most of the studies had concluded that capital structure measured by debt/equity ratio had an inverse relationship with profitability measured by Return on Investment (ROI). Professor Myers of MIT had written in 1995 that à ¢Ã¢â€š ¬Ã…“the strong negative correlation between profitability and financial leverageà ¢Ã¢â€š ¬? is one of the à ¢Ã¢â€š ¬Ã‹Å"most striking facts about corporate financingà ¢Ã¢â€š ¬? (p.303). It is worthy to mention here that the aforesaid studies were the most comprehensive ever carried out in the US. One significant research was conducted by Bradley, Jarrell and Rim (1984) using Ordinary Least Squares method to analyze the capital structure of 851 industrial firms over a period of 20 years (1962-81). They concluded that an optimal capital structure actually existed as proposed by finance theorists. Bradley, Jarrell and Kimà ¢Ã¢â€š ¬Ã¢â€ž ¢s findings were supported by El-Khouri in 1989 who studied a sample of 1,040 Companies in US from 27 different industries covering a period of 19 years (1968-86). El-Khourià ¢Ã¢â€š ¬Ã¢â€ž ¢s major findings were that there exists an optimal capital structure, and profitability was significantly but negatively related to capital structure. 3.5 Rajan and Zingalesà ¢Ã¢â€š ¬Ã¢â€ž ¢ Study Rajan and Zingales (1995), in their study of determinant of capital structure find that profitability is negatively or inversely related to gearing consistent with Toy et al. (1974), Kester (1986) and Titman and Wessles (1988). Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. More profitable firm will obviously need less borrowings, although on the supply-side such profitable firms would have better access to debt, and hence the demand for debt may be negatively related to profits. Most of such studies were conducted in US using local companies and hence represents financing and profitability relationship in US economy and might not be applicable in other countries around the globe. Some of the studies conducted in UK as well though changing business and economic environment and time period may have their impact on such capital structure and profitability relationship. Further as discussed earlier much attention was not given to one major aspect of the capital structure, which is the impact on the profitability and hence the value of the firm. So understanding the effect of capital structure on the profitability and hence the value of the firm in the current economic and business environment is the main motivation for this study. CHAPTER 3 RESERCH FRAMEWORK I intend to use two major sets of variables (Ratios) i.e. Debt and Profitability to ascertain the relationship between the capital structure and profitability. The first set includes Gearing ratios Debt/Equity Ratio and Debt Ratio. The other set includes profitability ratios Return on Equity, and Return on Assets. The variables will be analyzed using the descriptive/time-series Correlation and regression technique. 2.1 Data Sample The data used for the empirical analysis will be derived from Hemscott database contains balance sheet, profit and loss and certain Key Ratio information for FTSE 100 companies in UK. For the purposes of this dissertation, I expect to utilise this data to obtain the required variables for all non-financial companies. 2.2 The Model and Research Methodology The following model outlines the framework for research. It consist two major components i.e. the profitability of a firm as the dependent variables and the capital structure of a firm as the independent variables. The arrow pointing to the right indicated the expected direction of causality. However profitability and capital structure relationship is a two way relationship. DEBT RATIO ROE DEBT/EQUITYRATIO ROA The model gave the foundation for analysis which was to explain the relationship among the two main groups of variables. In as much as possible, variables will be selected on the basis of the literature being reviewed. Thus, while this study is expected to give exciting results, there will be direct ties to earlier studies although may reflect the changing requirements of the time. One prominent issue here is the direction of the causality in the model. This research is based on the notion that the capital structure being practised by a firm would affect its profitability. This particular cause-and-effect relationship had been proved in various studies as found in the literature being reviewed. Though it should be kept in mind that there were a number of researchers who had argued that it was profitability which would influence the capital structure (Chudson 1945, Lamothe 1982, Bowen, Daley and Huber 1982). However, it is not within the scope of this study to determine the direction of causality in this particular relationship but rather to focus on the significance of such a relationship. 2.3 Variables In the first instance, great care was taken to define the dependent and independent variables to be used in the descriptive, co variance and regression analysis. As there are several alternative measures of profitability and gearing, only relevant measures are chosen for this cross-sectional analysis. Dependent Variable Profitability is dependent variable in this analysis and two measures of profitability employed in this analysis are Return on Equity (ROE) and Return on Assets (ROA). ROE is the return on equity and is measured as earnings before tax (EBT) divided by ownersà ¢Ã¢â€š ¬Ã¢â€ž ¢ capital or equity. ROE = EBT/EQUITY ROA is return on assets and is measured as earnings before interest and tax divided by total assets (Titman and Wessels, 1998; Fama and French, 2002 and Flannery and Rangan, 2006). The ratio of earnings before interest and tax (EBIT), to the book value of total assets (TA) ROA = EBITDA/TA Independent Variables Gearing Ratio represents capital structure. Therefore, in order to examine the sensitivity or otherwise of their cross-sectional results to the profitability following two ratios are used in this analysis and defined as: Debt to Total Assets: This is a simple ratio of total debt to total assets DEBT RATIO= TD/ TA Debt to Equity Capital: This is the ratio of total debt to capital, with the capital calculated as total debt plus equity, including preference shares. DEBT/EQUITY RATIO = TD / (TD + ECR + PS) PS the book value of preference shares. Research Plan and Implementation Schedule Research work starts from week beginning from October 4, 2010 and is expected to complete in 10 weeks time. The work is scheduled as follows. Research Plan Week Star Date : 04-10-2010 Week 1 2 3 4 5 6 7 8 9 10 Background reading and literature review X X Research design and plan X Choice of methodology X Gathering data X X X Data analysis and refine X X X Writing up draft X X X Editing final document X X Produce final document X Document passed to supervisor to read X Resources I intend to use following resources Hemscott database for data collection. MS Excel for analysing data. University of Wales online library, internet, and some books on finance.