...STRUCTURE AND MARKET POWER I. M. Pandey Indian Institute of Management Ahmedabad Vastrapur, Ahmedabad 380015 India E-mail: impandey@iimahd.ernet.in W. P. No. 2002-03-01 March 2002 i CapStrMktPower I M Pandey CAPITAL STRUCTURE AND MARKET POWER I M Pandey ABSTRACT This paper provides new insights on the way in which the capital structure and market power and capital structure and profitability are related. We predict and show that capital structure and market power, as measured by Tobin’s Q, have a cubic relationship. That is, at lower and higher ranges of Tobin’s Q, firms employ higher debt, and reduce their debt at intermediate range. This is due to the complex interaction of the market conditions, agency problems and bankruptcy costs. We also show saucer-shaped relation between capital structure and profitability because of the interplay of agency costs, costs of external financing and debt tax shield. To our knowledge, we are the first to uncover these results. Key words: capital structure; market structure; market power; Tobin’s Q; riskshifting; moral hazard; agency problems; pecking order; trade-off theory; asset substitution. ii CapStrMktPower I M Pandey CAPITAL STRUCTURE AND MARKET POWER INTRODUCTION In corporate finance, works of Modigliani and Miller (1958; 1963) about capital structure irrelevance and tax shield advantage paved way for the development of alternative theories and a series of empirical research on capital structure. The alternative...
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...STRUCTURE AND MARKET POWER I. M. Pandey Indian Institute of Management Ahmedabad Vastrapur, Ahmedabad 380015 India E-mail: impandey@iimahd.ernet.in W. P. No. 2002-03-01 March 2002 i CapStrMktPower I M Pandey CAPITAL STRUCTURE AND MARKET POWER I M Pandey ABSTRACT This paper provides new insights on the way in which the capital structure and market power and capital structure and profitability are related. We predict and show that capital structure and market power, as measured by Tobin’s Q, have a cubic relationship. That is, at lower and higher ranges of Tobin’s Q, firms employ higher debt, and reduce their debt at intermediate range. This is due to the complex interaction of the market conditions, agency problems and bankruptcy costs. We also show saucer-shaped relation between capital structure and profitability because of the interplay of agency costs, costs of external financing and debt tax shield. To our knowledge, we are the first to uncover these results. Key words: capital structure; market structure; market power; Tobin’s Q; riskshifting; moral hazard; agency problems; pecking order; trade-off theory; asset substitution. ii CapStrMktPower I M Pandey CAPITAL STRUCTURE AND MARKET POWER INTRODUCTION In corporate finance, works of Modigliani and Miller (1958; 1963) about capital structure irrelevance and tax shield advantage paved way for the development of alternative theories and a series of empirical research on capital structure. The alternative...
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...Contents 1.0 Introduction and Motivation 1 2.0 Literature Review 2 3.0 Theoretical Framework 4 3.1 Stakeholder Theory 4 3.2 Positive Accounting Theory 5 3.2 Efficient Market Hypothesis 7 4.0 Discussion and findings 8 5.0 Conclusion 10 Reference 12 Relationship between Fair Value Measurements with Investor Confidence during Global Financial Crisis Abstract As investor, the needs of information which can reflect accurate financial information matching with current market condition is essential. Using fair value methods and measurement for asset valuation is one of the best accounting methods which can reflect current market condition accurately. But FVA cannot be separated from the critique especially when global financial crisis hit the world. Critique said FVA decrease investor confidence to invest in market which made more illiquid market during the time. In this paper, our aim is to find the relationship between fair value accounting, method, and measurement with investor confidence. We have been searched the data from previous journal that has been worked before to prove our assumption which are Fair value has decrease investor confidence and investor rely on information which is provided only by fair value measurement. 1.0 Introduction and Motivation There have been many studies on the role of FVA to global financial crisis (GFC) which may result in different opinion and open debate in the future. Most of the past research papers consist of the focus...
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...[pic] WorldCom Case Study FINC 621, Summer 2015 by Hailun Cao Mohammed Altuwaijri Papamagatte Diagne Qian Dou David Ballantine Yanchao Wu Strategic Analysis – Hailun Cao Bernie Ebbers, the chief executive officer, focused on acquisition business strategy. Major Acquisitions includes Advanced Telecommunications Corporation, IDB Communications group, Metromedia Communications Corporation and Resurgens, and Williams Telecommunications group (WilTel). All these firms perform different characteristics in the telecommunications industry. WorldCom faced some issues and WorldCom tried to manage these issues through the expansion business strategy. From the view of risk control, WorldCom met and solved challenges in the following aspects. Firstly, because of the increasing competition, increasing commoditization and low switching costs of long distance service, the long distance calls dropped obviously and long distance firms faced huge pressures under this circumstance. Therefore, WorldCom made acquisition of MCI in 1997. WorldCom made this decision through three main reasons. At first, since WorldCom was the No. 4 long distance provider and MCI was the No.2 long distance provider, the combination of the two firms could occupy 25% share in the U.S. long distance market. This situation consolidated WorldCom’s competiveness in such a depressing environment and decreased the risk in the long distance service market. In addition...
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...2009 Weekly Business Digest Week ending July 5, 2009 [TYPE THE DOCUMEN T TITLE] [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the Networth – Everything finance document.] The Finance Club of IIMB 05/07/2009 Table of Contents India Business News World Business News Food For Thought INDIA BUSINESS NEWS Indian Stocks Advance, Driving Sensex Higher for a Second Week India’s stocks rose, driving the benchmark index higher for a second week, led by Larsen & Toubro Ltd. (L&T), after the government pledged investment in the nation’s railways and left freight and passenger fares unchanged. L&T, the largest engineering company, added 2.6%. Tata Steel Ltd., the biggest producer of the metal, increased 4.2% on speculation it will avoid higher costs to transport raw materials after the government announced the railway budget. on June 15, the Bombay High Court had ordered RIL to sell the gas for 44% less than the government-set price. Indian business in declined 20%: FICCI Gulf has ABG Plans to Raise $150 Million to Fund Expansion ABG Shipyard Ltd., bidding for control of Great Offshore Ltd., plans to raise $150 million to fund expansion, reviving a proposal from April last year. ABG, which originally sought to raise $200 million, will seek shareholder approval for the new plan on July 7, Chief...
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...Financial Crisis By Hisham Al Rawashdeh Under supervision of PhD Muna Al Muallah Financial Management Petra University Jan 2016 Table of contents:- • Definition • Types of Financial crisis • Financial Crisis Causes • Theories • Financial Crisis of 2008 • Implications of Financial Crisis of 2008 on the emerging market. • Next Financial Crisis. • References Definition The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy. Financial crisis and Economic Crisis • Financial Crisis usually occurs in specific sectors, unlike the economic crisis which affect the entire economy. • If left unchecked, the financial crisis implications can lead to an economic crisis. In early 2008, many felt that this financial crisis would be limited to the banking sector and the housing market. However, the shortage of credit has had a very powerful impact on the real economy. Because banks are not lending, investment...
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...that Japan’s economy will not grow again, and that (with hindsight) this should not be surprising. First, Japan has matured, to the point where its labor force is in decline. Such an economy is unlikely to grow in absolute terms. Second, that maturation occurred in a short span of time, resulting in large structural shifts in the economy. These strained the Japanese financial system past the breaking point, and have stymied efforts at macroeconomic stimulus. I believe, however, that the magnitude of these shifts would have overwhelmed any financial structure. I do not deny that Japan’s financial system exhibited large vulnerabilities, and its macroeconomic policy systematic failures. Again, I believe that these are beside the point. Third, the current structure of Japan’s economy is not sustainable; financial liabilities (bank deposits, government social security commitments) and financial assets (good loans, and tax receipts under the status quo) are wildly out of balance. Bringing these into balance will inevitably impose a drag on economic growth into the distant future. The bottom line is that we should not expect the Japanese economy to grow again in our lifetimes. Let me preface the paper proper with a...
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...capital structure of multinational corporations (MNCs) and their diversification strategy. Both the international market (multi-country operations) and the product (multi-industry operations) dimension of diversification are integrated into the analysis and a switching of regression regimes methodology is employed that accounts for the bi-dimensional nature of the diversification strategy pursued by MNCs. The model identifies four types of diversification regimes. The results suggest that leverage increases with both international and product diversification. It is also found that the combination of both types of diversification leads to lower levels of bankruptcy risk. Although the role of the determinants of MNC capital structure varies with the diversification strategy, there seem to be common determinants. In particular, profitability and bankruptcy risks are negatively related to the debt ratio of MNCs. © 2001 Elsevier Science B.V. All rights reserved. JEL classification: F23; G32 Keywords: Multinational corporation; Capital structure; International diversification; Product diversification * Corresponding author. Tel.: + 1-418-6562131, ext. 3380; fax: +1-418-6562624. E-mail address: jean-claude.cosset@fas.ulaval.ca (J.-C. Cosset). 1 Tel.: + 1-613-5625800; fax: + 1-613-5625164, e-mail: chkir@admin.uottawa.ca...
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...Japan exports a lot of automobiles because it is one of the leading countries in the production of automobiles that are spread all over the world. Moreover, Japan is the largest creditor nation while running an annual trade surplus. The GDP per capita increased from $29369.49 in 2004 to $31425.49 in 2013 (Trading Economics, 2013) meaning that the economy is vigorous since people are earning more so they have more disposable income to spend which vitalities the economy and the services thus leading the economy to thrive. All these conditions led the growth rare to increase from 0.1% in 2004 to 0.3% in 2013 (Trading Economics), however it is still considered low since it only increase 0.2%. In general we can come to a conclusion that the Japanese economy is healthy and is experiencing a positive growth. Since we already know that the economy in Japan is booming it would be rational to say that there are new opportunities for new positions in the market, the demand for workers will increase which is typical in an expanding economy. When there are more people working, more people are paying taxes to the government and when people work more the purchasing ability increases so we there will be an increase in the consumption, because of that the unemployment rate will decrease and that’s exactly what is happening in Japan. Japan had experienced a drop in the...
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...Global Financial Crisis Impact and Challenges Shaikh Faisal. Assistant Professor Dr. Rafiq Zakaria Campus Millennium Institute of Management Aurangabad Introduction: The global financial system has undergone a period of unprecedented turmoil. Market confidence dwindled and has remained fragile, leading to the collapse or near-collapse of large, and in some cases systemically important, financial institutions, and calling forth public intervention in the financial system on a scale not seen for decades. The financial system has been severely weakened by mounting losses on impaired and illiquid assets, uncertainty regarding the availability and cost of funding, and further deterioration of loan portfolios as global economic growth slows. Finding a purely private sector resolution of financial market strains has become increasingly difficult, while case-by-case intervention by authorities has not alleviated market concerns. In response, more comprehensive approaches are now being considered or implemented to bring about a more orderly process of deleveraging and to break the adverse feedback loop between the financial system and the global economy. Such a comprehensive approach—if well coordinated among countries—should be sufficient to restore confidence and the proper functioning of markets and avert a more protracted downturn in the global economy. Significant writedowns have already been realized, but more may lie ahead. . . The estimate of aggregate write downs...
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...Journal Of Financial And Strategic Decisions Volume 10 Number 3 Fall 1997 STRATEGIC ASSETS, CAPITAL STRUCTURE, AND FIRM PERFORMANCE Rahul Kochhar* Abstract Possession of strategic assets is a necessary condition for sustained competitive advantage. This condition is, however, not sufficient. Firms require financial management capability to realize the rents present in their strategic assets. The firm-specific nature of strategic assets implies that they be financed primarily through equity; other less specific assets should be financed through debt. Firms are likely to suffer increased costs and decreased performance if they do not adopt suitable governance structures in their transactions with potential suppliers of funds. INTRODUCTION The recently developed “resource-based view of the firm” seeks to focus the attention of researchers and managers alike on the unique and hard-to-copy strategic assets of the firm [7, 61]. Firms earn economic rents from these assets when there is an initial level of asymmetry in resource endowments, there is imperfect mobility of these assets, the market for these assets is imperfect, and competitors cannot easily obtain similar assets [2, 6, 7, 20, 24, 48]. Strategic assets provide the firm with a source of steady stream of rents so that it gains a sustained competitive advantage over its rivals. While researchers in this area have a general agreement over the characteristics of strategic assets (albeit adopting slightly different terminology...
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...80R 01mackenzie (ds) Page 349 Thursday, July 24, 2003 3:04 PM Economy and Society Volume 32 Number 3 August 2003: 349–380 Long-Term Capital Management and the sociology of arbitrage Donald MacKenzie Abstract Arbitrage is a key process in the practice of financial markets and in their theoretical depiction: it allows markets to be posited as efficient without all investors being assumed to be rational. This article explores the sociology of arbitrage by means of an examination of the arbitrageurs, Long-Term Capital Management (LTCM). LTCM’s 1998 crisis is analysed using both qualitative, interview-based data and quantitative examination of price movements. It is suggested that the roots of the crisis lay in an unstable pattern of imitation that had developed in the markets within which LTCM operated. As the resulting ‘superportfolio’ began to unravel, arbitrageurs other than LTCM fled the market, even as arbitrage opportunities became more attractive, causing huge price movements against LTCM. Three features of the sociology of arbitrage are discussed: its conduct by people often personally known to each other; the possibility and consequences of imitation; and the limits on the capacity of arbitrage to close price discrepancies. It is suggested that by 1998 imitative arbitrage formed a ‘global microstructure’ in the sense of Knorr Cetina and Bruegger. Keywords: arbitrage; economic sociology; imitation; Long-Term Capital Management (LTCM); globalization;...
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...BSTR/166 IBS Center for Management Research The Fall of MG Rover This case was written by K. Yamini Aparna, under the direction of Vivek Gupta, IBS Center for Management Research. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. 2005, IBS Center for Management Research. All rights reserved. To order copies, call +91-8417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally, Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: info@icmrindia.org www.icmrindia.org BSTR/166 The Fall of MG Rover “Rover’s demise must give us all pause for thought about how we have failed to protect our once magnificent manufacturing industry and why…”1 - Editorial, Daily Express, April 16, 2005. “The death of a factory and the end of a great tradition… the suspects...British Aerospace, BMW, the Government, Phoenix Four…”2 - Sean O'Grady, The Independent, April 26, 2005. MG ROVER SEEKS BANKRUPTCY In its lifespan of over a century, MG Rover Group Limited (MG Rover), one of the oldest and largest automobile manufacturers in the UK, went through countless mergers, takeovers and partnerships. The last merger negotiations the company went through before it folded up, took place in June 2004. This time MG Rover was negotiating with China‟s Shanghai Automotive Industrial Corporation (SAIC)3...
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...Bachelor of Finance & Banking Thesis -------------------------------------- The impact of capital structure on profitability of listed construction companies on Hanoi Stock Exchange from 2008 to 2013 FALL 2014 Instructor Mr. Tran Viet Dung Group members Nguyen Thi Thanh Tam (FB00464) Nguyen Thi Viet Chinh (FB00405) Hoang My Linh (FB00073) Dang Thi Hong Hanh (FB00253) Nguyen Thi Kieu Trang (FB00078) Hanoi, December 2014 Table of Contents List of tables 3 List of figure 4 Abstract 5 Chapter 1: Introduction and Thesis Outline 6 1. Background 6 2. Research objective 8 3. Research question 8 4. Data and methodology 8 4.1 Data 8 4.2 Methodology 9 5. Thesis outline 9 Chapter 2: Literature Review and theoretical models 10 1. Theorem review 10 1.1. Modigliani- Miller theorem review 10 1.2. Agency theory 12 1.3. Trade-off theory 14 1.4 Pecking Order Theory 19 1.5 Market-timing theory 20 2. Variable review 22 2.1. Return on Asset and Return on Equity 22 2.2. Capital structure 23 3. Empirical studies 24 3.1. Relationship between capital structure and firm performance 24 3.2. Empirical studies of relationship between determinants of capital structure and profitability 28 4. Summary of the empirical studies 30 Chapter 3: Methodology 31 1. Introduction 31 2. Data collection methods 32 2.1. Sampling techniques 32 2.2. Data collection procedure 34 3. Variables and hypotheses 34 3.1. Dependent...
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...Introduction Traditionally, managers in manufacturing companies have sought to maximize production so as to spread the costs of investments in equipment and other assets over as many units as possible. In addition, managers have traditionally felt that an important part of their job is to keep everyone busy on the theory that idleness waste money. These traditional views often aided and abetted by traditional management practices. Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals between different points in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented correctly, JIT can improve a manufacturing organization's return on investment, quality, and efficiency. Different from JIT in that it is externally focused on the customer, lean operation starts with understanding what the customer wants. Lean production Optimize the entire process from the customer’s perspective. It is the systematic removal of waste by all members of the organization from all areas of the values stream. Lean is often referred to as a cost-reduction mechanism. Lean strives to make Lean, six sigma and lean sigma organizations more competitive in the market by increasing efficiency, decreasing costs...
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