...– 1998 4 22 Graham (2000) ‘How Big Are the Tax Benefits of Debt?’ 25 GRAHAM (2000) 2 28 Graham 3 29 How big are the tax benefits of debt? John Graham – 2002 4 29 Lecture 2 32 Myers (1984) ‘The Capital Structure Puzzle’ 32 MYERS (1984) The Capital Structure Puzzle 2 36 Myers 3 39 The capital structure puzzle Myers – 1984 4 40 Andrade & Kaplan (1998) ‘How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distress’ 44 Kaplan 2 46 Andrade & Kaplan (1998) 3 51 Andrade & Kaplan – 1998 4 52 Lecture 3 56 Myers & Maljuf (1984) ‘Corporate Financing and Investment Decisions when Firms have Information that Investors Do Not Have’ 56 Myers and Majluf 2 61 Myers & Mailuf (1984) 3 66 Myers & Majluf – 1984 4 68 Frank & Goyal (2007) ‘Trade-off and Pecking Order Theories of Debt 74 Frank, Murray and Goyal, Vidhan 2 75 Frank & Goyal (2007) 3 83 Trade-off and pecking order theories of debt Frank & Goyal – 2007 4 85 Lecture 4 92 Ross (1977) ‘The Determination of Financial Structure: the Incentive-Signaling Approach’ 92 ROSS (1977) 2 94 Ross (1977) 3 95 Ross – 1977 4 95 Riley (2001) ‘Silver Signals: Twenty-Five Years of Screening and Signaling’ 99 Riley – 2001 2 101 Harris & Raviv (1990) ‘Capital Structure and the Informational Role of Debt’ 106 Harris & Raviv (1990) 2 108 Harris & Raviv – 1990 3 109 Heinkel & Zechner (1990) ‘The Role of Debt and Preferred Stock as a Solution to Adverse Investment Incentives’...
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...began with and the famous proposition of Modigliani Miller (1958) that described the conditions of capital structure irrelevance. Since then, been changing these conditions to explain factors driving capital many economists have structure decisions. Harris and Raviv (1991) synthesized major theoretical literature in the field, related these to the known empirical evidence, and suggested promising avenues for future research. They argued that asymmetric information theories of capital structure are less promising than control-based or product-based theories. The financial crisis of 2008-2009 forces to look critically at the modern level of capital structure theory. The problems of many companies were related to their financing policies. The role of asymmetric information and agency problems has to be understood better....
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...ORGANISATION RESEARCH PAPERS The 2 research papers under study are 1. The effect of CEO ownership and shareholder rights on cost of equity share capital. 2. What motivates seasoned equity offerings? Evidence from the use of issue proceeds. COST OF EQUITY CAPITAL AND ITS EFFECTS TO THE MANAGEMENT Introduction This paper investigates the cost of equity capital and its effects to the management which intends to hinder shareholders right. The purpose of which is to investigate whether managerial ownership affects the associations between the shareholders rights and the cost of equity capital. There are two variables in the article which can be clearly identified. The variables are; 1) The shareholders rights and 2) The cost of the equity capital. 1) THE SHAREHOLDERS Shareholders should have the right to discipline the managers, who are the employees of the organization, in the case of the mismanagement or the improper use of the funds. The shareholders have right to demand for the success of the organization through competing aggressively in order to gain profitability. The shareholders have right to elect and remove the management from the office and also to access or evaluate the books of accounts of the organization. 2) COST OF EQUITY CAPITAL Rate of return of equity Current market price and the nominal value of equity capital CONCEPTUAL FRAMEWORK THE AGENCY PROBLEMS: THE MANAGEMENT VERSUS SHAREHOLDERS Whenever ownership is derived from control a conflict...
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...Research Study Capital-Market Effects of Corporate Disclosures and Disclosure Regulation Christian Leuz Peter Wysocki June 26, 2006 Commissioned by the Task Force to Modernize Securities Legislation in Canada Christian Leuz Christian Leuz is currently the Professor of Accounting at the University of Chicago, Graduate School of Business. He is also the David G. Booth Faculty Fellow. Prior to this position, Professor Leuz was the Harold Stott Term Assistant Professor in Accounting at the Wharton School of the University of Pennsylvania and Fellow at Wharton’s Financial Institution Center. His research interests include transparency and corporate governance, financial disclosure and securities regulation, and the links between the institutions of market economies. Professor Leuz earned his doctoral degree and “Habilitation” at the Goethe University Frankfurt in Germany. His most recent publications have appeared in the Journal of Financial Economics, the Journal of Accounting and Economics and the Journal of Accounting Research. He is an Associate Editor of the Journal of Accounting and Economics and serves currently on the Editorial Board of The Accounting Review, the Journal of Accounting Research, the Journal of Business, Finance and Accounting, and the International Journal of Accounting. He has received several grants and honors, of which the Geewax Terker Prize is the latest. Peter Wysocki Professor Peter Wysocki is an associate professor of management at...
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...Debt contracts typically contain covenants based on accounting variables. 4) Financial reporting should not be conservative. b. Which of the following statements best captures the meaning of the decision usefulness approach to financial reporting? 1) 2) 3) 4) c. The decision usefulness approach helps standard setters design successful accounting standards. The decision usefulness approach ensures that accountants and auditors behave ethically. The decision usefulness approach encourages the supply of useful information to investors. The decision usefulness approach supports principles-based accounting standards. Which of the following statements about the fundamental value of a share is correct? 1) The fundamental value of a share is the share’s price on an efficient market. 2) The fundamental value of a share is the share’s price on an efficient market with no inside information. 3) The fundamental value of a share is the share’s price if investors are...
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...Islamic Banking and Finance To Dr Mohammad Omar Zubair, who is a source of inspiration for all those working in the field of Islamic economics and finance Islamic Banking and Finance New Perspectives on Profit-Sharing and Risk Edited by Munawar Iqbal Islamic Development Bank, Saudi Arabia David T. Llewellyn Loughborough University, UK Edward Elgar Cheltenham, UK • Northampton, MA, USA In association with: International Association of Islamic Economics Islamic Development Bank The Islamic Foundation © Dr Munawar Iqbal and Professor David T. Llewellyn 2002 (on behalf of the Steering Committee for the Fourth International Conference on Islamic Economics and Banking held at Loughborough University, UK, August 13–15, 2000) All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Islamic Banking and Finance: New Perspectives on Profit-Sharing and Risk / edited by Munawar Iqbal, David T. Llewellyn p. cm. “Some of the papers were presented...
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...Course Project: Merck Pharmaceutical Sydney Momoh Tanika Thomas PM587 Prof. Susan Orr June 9th, 2012 Table of Contents 1.0 Introduction of Merck Company………………………………………………………..…..3 2.0 Organization Strategic Plan………………………………………..…………………………3 • Sustainability of loyal customers and employees • Change to meet customers demand • Growth will strengthen the company through acquisitions ……………………….4 3.0 Strategic Capacity Plan………………………………………………………………………4 4.0 Portfolio Management Process……………………………………………………………...5 • Capital Structure of Merck Group…………………………………………………6 5.0 Portfolio Selection Criteria …………………………………………………………………7 • Serono • Millipore • Integrated Chemicals 6.0 Program Management Plan ………………………………………………………………...8 7.0 Plan to Identify and Resolve Conflict ……………………………………………………..10 8.0 Change Management Plan …………………………………………………………………11 9.0 Resource Utilization Plan ………………………………………………………………….11 10.0 Reference Page …………………………………………………………………………….12 Introduction: We found pharmaceutical companies to be better fit for our project. This industry touches each person on this planet in one form or another and the work they are conducting in search of making every ones live healthier and live longer than our fore fathers. When we stacked up all pharmaceutical companies, we found Merck Corporation to meet all of the criteria that we were looking for in a pharmaceutical industry. Merck have conducted many projects concurrently during drug developments...
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...Kapitel 1 Normative (prescriptive) accounting theory Inte baserad på empiriska tester (som positive teorier är) utan de är baserade på vad researcher tror ska eller borde inträffa vid särskilda omständigheter. Teorier som föreskriver (prescribe) istället för förklarar (describe) särskilda handlingar kallas för normativa teorier eftersom att dom baseras på normer som researchern som lägger fram teorierna har. T.ex. säger hur vi ska ta till oss och använda redovisningsmetoder. Kapitel 2 Theories of regulation Public interest theory There is the public interest theory of regulation which propose that regulation be introduces to protect the public. It assumes that the regulatory body (usually government) is a neutral arbiter of the public interest and does not let its own self-interest impact on its rule-making processes. “The regulator does its best to regulate so as to maximize social welfare. Consequently, regulation is thought of as a trade-off between the costs of regulation and its social benefits in the form of improved operations of markets”. Regulation put in place to benefit society as a whole rather than vested interests. Regulatory body considered to represent interests of the society in which it operates, rather than private interests of the regulators. Assumes that government is a neutral arbiter. Criticisms of public interest theory Critics question assumptions that economic markets operate inefficiently if unregulated. Question the assumption...
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... 2. Conservative Financial Reporting Conservatism is the differential verifiability required for the recognition of accounting gains versus losses that generates an understatement of net assets. (Basu, 1997) There has been evidence strongly suggesting that U.S companies had used conservative financial reporting practices since the last five decades. (Watts, 2003) It is argued that conservatism of financial reporting arises because of information asymmetry between firm managers and shareholders. While information asymmetry refers to a situation where one party has more or superior information compared to another, (Akerlof, 1970) theoretical researchers have found that managers do not have the same incentive as shareholders or investors, and can use their information advantages to transfer the wealth from shareholders to themselves. (Watts, 2003) Following that, managers tend to report good aspects of the financial statements so as to gain extra compensation that is frequently dependent on the...
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...Scott, Financial Accounting Theory, 6th Edition Instructor’s Manual Chapter 2 Suggested Solutions to Questions and Problems 1. P.V. Ltd. Income Statement for Year 2 Accretion of discount (10% × 286.36) $28.64 P.V. Ltd. Balance Sheet As at Time 2 Financial Asset Cash $315.00 Shareholders’ Equity Opening balance Net income Capital Asset Present value 0.00 $315.00 $315.00 $286.36 28.64 Note that cash includes interest at 10% on opening cash balance of $150. 2. Suppose that P.V. Ltd. paid a dividend of $10 at the end of year 1 (any portion of year 1 net income would do). Then, its year 2 opening net assets are $276.36, and net income would be: P.V. Ltd. Income Statement For Year 2 Accretion of discount (10% × 276.36) $27.64 Copyright © 2012 Pearson Canada Inc 11 Scott, Financial Accounting Theory, 6th Edition Instructor’s Manual P.V.’s balance sheet at time 2 would be: P.V. Ltd. Balance Sheet As at Time 2 Financial Asset Cash: (140 + 14 + 150) $304.00 Chapter 2 Shareholders’ Equity Opening balance: $276.36 (286.36 - 10.00 dividend) Capital Asset, at Present value 0.00 $304.00 $304.00 Net income 27.64 Thus, at time 2 the shareholders have: Cash from dividend Interest at 10% on cash dividend, for year 2 Value of firm per balance sheet $10.00 1.00 304.00 $315.00 This is the same value as that of the firm at time 2, assuming P.V. Ltd. paid no dividends (see Question 1). Consequently, the firm’s dividend policy does not matter to the shareholders...
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...wholesale engages in the sale of luxury goods through mainline stores, have directly operated stores and concessions, a digital platform active in various languages. The companies’ have subsidiaries in Europe, Middle East, India, Africa and Asia Pacific region. Using the companies’ annual report of the recent year ending 2014 and 2015 a corporate governance analysis can be made. Does the geographical location of this company impact on their corporate governance structure? The geographical location is important and has an impact of their corporate governance approach since where the headquarters is situated and proximity to the management board influence the decision making of the companies’ by laws, countries have to adopt a system or more than one system of governance as seen in France. Hugo Boss and Burberry are companies’ whose approach of corporate governance are stakeholder and shareholder oriented respectively. Letza et al 2004, compares shareholders and stakeholders approach as the two distinct model adopted over the years by advanced industrial nations and governments. The world is now a global village, funds can be gotten internationally, so the need to boost income, growth, profitability and longevity is sought after. In order to build cross border investment and growth, the demand for transparency and accountability has to be realized so the need of governance code is subject to be created and the model applied impacts on their way of governance structure....
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...Journal of Accounting and Economics 31 (2001) 255–307 Empirical research on accounting choice$ Thomas D. Fieldsa, Thomas Z. Lysb,*, Linda Vincentb b Graduate School of Business Administration, Harvard University, Boston, MA 02163, USA Kellogg Graduate School of Management, Northwestern University, Evanston, IL 60208, USA Received 21 January 2000; received in revised form 31 January 2001 a Abstract We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers’ choices: agency costs, information asymmetries, and externalities affecting non-contracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters. r 2001 Published by Elsevier Science B.V. JEL classification: M41 accounting Keywords: Capital markets; Accounting choice; Voluntary disclosure; Accounting judgments and estimates; Earnings manipulation $ We are grateful for comments received from Ronald Dye, participants of the 2000 Journal of Accounting and Economics conference, the editors Ross Watts and Douglas...
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...11/3/2008 FIN720 | Baitshepi Tebogo| 9302747|MBA | term paper | CAPITAL STRUCTURE AND DIVIDEND POLICY DISCUSSION: How does Standard Chartered Bank Botswana contribute to this discussion? | TABLE OF CONTENTS Abstract 3 Historical Background 4 Literature Review 6 Research Objectives 21 Methodology 22 Challenges 23 Methods 24 Data Analysis 25 Conclusion and Recommendations 27 References 28 Appendices 32 ABSTRACT The paper begins by highlighting the historical background of Standard Chartered Bank, and its evolution over the years, and how it eventually got to set up in business in Botswana. After this, the paper delves into the capital structure and dividend policy theories at length. The theories are at first discussed separately, and then meticulously blended as the report progresses. In addition, after a more general discussion, the topic is narrowed down to reflect on the capital structure subsisting under a banking environment. Empirical evidence from Standard Chartered Bank Botswana is then presented to assist future researchers reflect on how it stands against conventional theory. The result of the empirical study shows positive correlation between capital structure and dividend payment; and an even stronger correlation is evident between earnings per share and dividend payment. The paper, however, ends by recommending further studies using larger...
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...Capital Structure Decisions: Which Factors Are Reliably Important? Murray Z. Frank and Vidhan K. Goyal∗ This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market-to-book assets ratio (−), tangibility (+), profits (−), log of assets (+), and expected inflation (+). In addition, we find that dividend-paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market-to-book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade-off theory of capital structure. When corporations decide on the use of debt finance, they are reallocating some expected future cash flows away from equity claimants in exchange for cash up front. The factors that drive this decision remain elusive despite a vast theoretical literature and decades of empirical tests. This stems in part from the fact that many of the empirical studies are aimed at providing support for a particular theory. The amount of evidence is large, and so it is often all too easy to provide some empirical support for almost any idea. This is fine for a given paper but more problematic for the overall development of our understanding of capital...
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...Emerging Markets Review 13 (2012) 516–547 Contents lists available at SciVerse ScienceDirect Emerging Markets Review journal homepage: www.elsevier.com/locate/emr Corporate governance, agency problems and international cross-listings: A defense of the bonding hypothesis☆ G. Andrew Karolyi ⁎ Johnson Graduate School of Management, Cornell University, 348 Sage Hall, Ithaca, NY 14853, USA a r t i c l e i n f o Article history: Received 30 June 2011 Received in revised form 6 August 2012 Accepted 7 August 2012 Available online 17 August 2012 JEL classification: F30 G15 G32 G38 Keywords: Cross-listing Stocks Bonding International financial markets a b s t r a c t Why firms from around the world seek to cross-list their shares on overseas exchanges has intrigued scholars during the past two decades. A general dissatisfaction with the conventional wisdom about investment barriers segmenting global investors and how cross-listings overcome those barriers cleared the way for newer wisdom about informational problems and agency conflicts, and how firms could overcome weaknesses in corporate governance by listing on, and thus “bonding” to, overseas markets with stronger regulatory oversight, stringent reporting and disclosure requirements and investor protections. Critics have challenged the viability of the bonding hypothesis, which I answer in this review. © 2012 Elsevier B.V. All rights reserved. 1. Introduction Cross-listing — also referred...
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