bluuebunny/crossref_metadata_2025 huggingface dataset:
Leasing in Theory and Practice
Authors: Taylor Peter J.
Published: January 2008

The use of leasing as a means of obtaining business assets has grown spectacularly in recent years in the UK and other countries. This means that many managers have perceived, or been persuaded of, particular benefits which leasing confers. It is necessary, therefore, to understand the issues involved in leasing to appreciate why leasing has become so popular and to be able to evaluate leasing arrangements so that correct decisions can be made.
The Term Structure of Interest Rates: a Survey of the Theories and Empirical Evidence
Authors: Colin Dodds J.
Published: January 2008

In financial markets investors and borrowers are faced with a whole structure of prices and interest rates on financial instruments. The determination of equilibria in these markets is a complex process and presents a challenge to researchers and practitioners alike. In this article we are concerned with a single section of these markets where we study the relationships between the interest rates or yields on financial securities which can be distinguished from each other (as far as possible) only by their term to maturity. We only cover the structure of money or nominal yields, as an examination of the real returns would require another arti‐cle in itself.
Some Methodological Considerations when Evaluating the Empirical Studies of the Efficient Capital Markets Hypothesis
Authors: Barnes Paul A.
Published: January 2008

During the last decade or so there has been a huge outpouring of empirical studies of the efficient capital market hypothesis (ECMH). These studies are of potential use to the financial manager, not just as indicators of the extent to which capital markets are efficient, but more importantly as indicators as to the effects of certain financial policies and activity on a company's share price.
Mini‐Micro Computer Price‐Performance Ratio: Present Events and Future Trends
Authors: Rushinek Sara
Published: January 2008

In an attempt to meet a rapidly increasing demand, the minicomputer industry has expanded. This resulted from a void by mainframe systems with respect to speed and a decrease in facility access. Mini‐computers have been defined to be:
Costing Aspects of Segmented Reporting and its Contribution Approach
Authors: Rushinek Avi
Published: January 2008

To operate effecively, managers and decision makers must have a great deal of information; much more that what is provided by a single income statement. From this necessity to the development and implementation of a more detailed and segmented process of information, there is only one step. This paper will cover some aspects of segmentation in information and will also examine the most important aspect of Statement of Financial Accounting Standards (SFAS) No. 14, that regulates segmented information.
Capital Budgeting Techniques, The Payback Period, The Net Present Value, The Internal Rate of Return and their Computer Applications
Authors: Rushinck Avi
Published: January 2008

Capital Budgeting is defined as planning and financing long term investment projects in both the private and public sectors (Skierkowski, 1981). In the literature, there is a great deal of discussion about CB in the public sector (Bradley and Frey, 1979), as well as emphasis in the private sector (Murdick et.al., 1980). This paper concentrates on the private sector since it involves the profitability issue, which is strongly affected by CB decisions; although, many other CB issues are in common for both private and public sector organizations. Therefore, this study presents an integrated approach that can be applied to both profit as well as to non‐profit organizations.
Control Aspects of Standard Costing: Variance Analysis, Inflation Adjustment, The Learning Curve and their Computer Applications
Authors: Rushinek Avi
Published: January 2008

Standard Costing (SC) systems and Variance Analysis (VA) are tools used by managerial accountants to measure performance. These tools rely heavily on quantitative techniques such as statistical analysis.
SSAP 16 and Capital Maintenance
Authors: Rowland John
Published: January 2008

After more than five years debate Statement of Standard Accounting Practice No. 16 (SSAP 16) brought current cost accounting (CCA) into the annual financial reports of most large businesses. This debate may have allowed many of the ideas contained in CCA to enjoy widespread familiarity and even acceptance, but when introducing a standard as far reaching as SSAP 16, it is important to ensure that the concepts on which it is based are clearly understood. Unfortunately, despite the considerable discussion on SSAP 16, there are still important implicit concepts which have not been clarified adequately and so impede understanding. One of the most important concepts in this respect is capital maintenance.
Accounting for Leases ‐ The Major Issues
Authors: Fox Alan F.
Published: January 2008

Following six years consideration of the problem, and the production of at least two widely circulated early versions of the proposed exposure draft, the ASC formally published ED 29 in October 1981. ED 29 deals with accounting for leases, but excludes contentious lease contracts concerning rights to explore for or to exploit natural resources and similarly it does not cover licencing agreements for films, patents, copyrights etc. The exposure draft requires capitalisation of finance lease contracts in the accounts of lessees, is broadly consistent with the American, Canadian and International standards and compatible with, but more restrictive than, the Australian exposure draft (which permits, but does not require, capitalisation). In spite of the gestation period, the prior consultation with interested parties and the restricted coverage of the ED, its proposals are controversial and have provoked reaction from both lessors and lessees in the UK. Lease accounting, clearly, is not a simple matter. Indeed leasing arrangements raise many questions which encompass fundamental conceptual issues in accounting and finance. Any resolution of these issues, such as ED 29, in turn gives rise to problems of application.
Accounting Standards for the UK Oil and Gas Industry
Authors: Pratt Kenneth C.
Published: January 2008

When the Accounting Standards Steering Committee (ASSC) began the task of setting Accounting standards for the UK in 1969 there were many issues which needed their attention. The more fundamental issues applicable to almost all company accounts were naturally a high priority. Early standards therefore were not industry‐specific. This series of generally applicable standards continued up until 1981 when Exposure Draft 28, “Accounting for Petroleum Revenue Tax”, was issued with reference to the accounts of one industry alone. In this respect the ASSC and its successor the Accounting Standards Committee (ASC) were following a similar pattern to that of development of Accounting standards in the United States where a run of widely applicable standards beginning in 1973 was broken by the issue in 1975 of FAS 9 “Accounting for Income Taxes ‐ Oil and Gas Producing Companies”.
Personal Sector Investment in Financial Assets: Practices And Preferences
Authors: Fanning David
Published: January 2008

Over the past three decades, considerable disquiet has been expressed by many commentators over a movement away from financial asset‐holding by the personal sector and a concomitant institutionalization of the financial and stock markets. To a large extent, that concern has been occasioned by a concentration of interest on the equity market as a surrogate for all financial asset markets, and the burgeoning equity trading activities of the life companies and pension funds have served to bolster the arguments that private individuals are turning away from traditional forms of financial asset‐holding.
Private Shareholders' Attitude to Rights
Authors: Keef S.P.
Published: January 2008

In 1978 a postal questionnaire was despatched to 300 private shareholders of two public companies to determine their understanding of rights issues. This paper examines their attitudes towards rights issues using as a basis the perfect market model.
A Concise Guide to the Literature of Personal Investment and Financing
Authors: Wilson Richard M.S.
Published: January 2008

In the light of the developing nature of the personal investment and financing domain any guide to the literature is inevitably going to be subjective: one individual might prefer a rational, analytical emphasis (reflecting, perhaps, an economic orientation), whilst another might favour an empirical orientation (reflecting real‐world patterns of human behaviour that may have significance for commercial exploitation). This guide contains elements of both these approaches, plus others, and draws on the available literature in a selective but multi‐disciplinary manner.
Changes in the Prompt‐Payment Discount during Inflation
Authors: Foster Roden Peyton
Published: January 2008

The prompt‐payment discount offered by a company is an important determinant of its investment in accounts receivable. During inflation, this discount must be increased in order for the selling company to avoid having an increase in its average collection period, an increase in its investment in receivables, and decline in the wealth of its shareholders. This article presents the rationale for increasing the prompt‐payment discount during inflation and concludes with a table listing the necessary prompt‐payment discounts that will leave the real prompt‐payment discount unchanged and minimize the company's exposure to purchasing power losses.
Credit Investigation Policy and Management Planning
Authors: Johnson Arnell D. , Stowe John D.
Published: January 2008

The selection of the optimal credit investigation policy is a sequential decision problem that Mehta solved using decision tree analysis. This paper explores the managerial implications of the credit investigation/credit granting policy. The credit policy selected effects the resources required for credit investigation, the scale of collection efforts, the level and breakdown of accounts receivable, cash budgets, and total sales and production costs.
Budgeting Promotional Expenditures: Theory and Practice
Authors: Carlson David C. , McDevitt Paul
Published: January 2008

This paper examines the theory and practice of promotional budgeting. Part 1 contains a brief review of the literature in this important area. Part 2 presents the theoretical underpinnings of the promotional budgeting decision and introduces a conceptual model for illustrating these. In the next section this model is used to identify desirable budgeting strategies for different sets of market circumstances. Part 4 describes several problems which practitioners confront in determining optimum promotional outlays. Finally, Part 5 identifies the most frequent methods that are used to set promotional budgets.
Managing Foreign Exchange Risks: Organisational Aspects
Authors: Mathur Ike
Published: January 2008

A multinational firm in its normal, day to day conduct of business becomes vulnerable to potential gains and losses due to changes in the values of its assets and liabilities that are denominated in foreign currencies. Exporting, importing, and investing abroad expose the firm to foreign exchange risks. Under the 1944 Bretton Woods Agreement, Central Bank interventions in foreign currency markets were frequent, with relatively minor changes in exchange rates. Managers then could afford to ignore foreign exchange exposure. However, with the demise of the Agreement in 1973, exchange rates for major currencies have fluctuated freely, sometimes wildly. These currency fluctuations constantly change the values of foreign currency assets and liabilities, thereby creating foreign exchange risks. Managing these foreign exchange risks now constitutes one of the most difficult and persistent problems for financial managers of multinational firms.
International Transfer Pricing Objectives
Authors: Knowles Lynette L. , Mathur Ike
Published: January 2008

Applied transfer pricing information has repeatedly been proven difficult to gather. Many enterprises work under secrecy regarding transfer pricing systems, believing that caution used in revealing information stymies possible problems related to transfer pricing that can involve internal and/or external factors. Even though there is some controversy concerning the appropriateness of the amount of data used in the research, interested parties can still benefit through studies of the transfer pricing literature.
The Ownership of British Industry
Authors: Dobbins Richard , Cuthbert Norman H.
Published: January 2008

The Growth of Institutional Shareholdings 1966–1980. Institutional investors, particularly insurance companies and pension funds, are consistent purchasers of company and overseas securities. Of particular interest is the ownership of U.K. quoted equities, rather than ownership of debentures, preference shares and overseas securities. Ownership of the ordinary share capital is of particular interest because the votes attached to equities give the holders legal powers to influence management through general meetings. The impact of the growth of institutional shareholdings on corporate management and the London Stock Exchange will be discussed in later articles. This article demonstrates the growth of institutional ownership of British industry, comments on the concentration of institutional holdings in large companies, illustrates the avoidance of new issues by financial institutions, and comments on the future pattern of U.K. share ownership.
Institutional Transactions in Financial Assets
Authors: Colin Dodds J. , Dobbins Richard
Published: January 2008

Although the focus of this issue is on investment in British industry and hence we are particularly concerned with debt and shares, the transactions and holdings in these cannot be separated from the range of other financial claims, including property, that are available to investors. In consequence this article focuses on an overview of the financial system including in Section 2 a presentation of the flow of funds matrix of the financial claims that make up the system. We also examine more closely the role of the financial institutions that are part of the system by utilising the sources and uses statements for three sectors, non‐bank financial institutions, personal sector and industrial and commercial companies. Then we provide, in Section 3, a discussion of the various financial claims investors can hold. In Section 4 we give a portrayal of the portfolio disposition of each of the major types of financial institution involved in the market for company securities specifically insurance companies (life and general), pension funds, unit and investment trusts, and in Section 4 a market study is performed for ordinary shares, debentures and preference shares for holdings, net acquisitions and purchases/sales. A review of some of the empirical evidence on the financial institutions is presented in Section 5 and Section 6 is by way of a conclusion. The data series extend in the main from 1966 to 1981, though at the time of writing, some 1981 data are still unavailable. In addition, the point needs to be made that the samples have been constantly revised so that care needs to be exercised in the use of the data.
Financial Institutions, Corporate Control and Financing
Authors: Pass Christopher L. , Witt Stephen F.
Published: January 2008

Previous articles have demonstrated the extent to which financial institutions have come to own a growing proportion of ordinary shares in industrial and commercial companies. In the present article we examine the implications of this development for two areas of particular concern: corporate control and corporate financing.
The Economics of the Industry
Authors: Sutherland R.J. , Haworth M.
Published: January 2008

One of the principal findings of the most recent enquiry into professional football was that: “Running a successful league club is now a major commercial activity”. In general terms, professional football clubs too were confronted with financial and management problems.
Finance and Football Clubs : What Cash Flow Analysis Reveals
Authors: Webb B.J. , Broadbent J.M.
Published: January 2008

The precarious position of Football League Club finances has been highlighted by extensive press coverage and has given concern to the Football League. It is our contention that the use of “traditional” financial reporting practices has hindered full understanding and consideration of the causes and indicators of clubs' financial difficulties. The first part of this article considers the objectives of financial reporting, and the view that these are best met by cash‐flow information; the second part reports on the results of an empirical investigation of a sample of Football Club accounts and assesses the informational value of a cash flow approach.
Hiring as an Investment Decision: The Recruitment Policies of the Professional Football Club
Authors: Sutherland R.J.
Published: January 2008

The total neglect of human assets as opposed to physical assets is one of the anomalies of financial accounting. Perhaps nowhere is this anomaly greater than in the instance of the professional football club, because here the net worth of the human resources, principally the playing staff, helps determine playing success and perhaps ultimately financial success. Moreover, such is the nature of the employment contract in professional football, these human resources may be transferred between clubs, and the corresponding financial transaction is manifest in what might be termed autonomous and induced effects in the financial accounts of the buying and selling club respectively.
Overview of ZBB: Theoretical Concepts
Authors: Ralston Bill
Published: January 2008

In organisations today it is essential that the budgeting process be not just effective in the determination of the allocation of resources, but also be perceived by all those involved within the organisation to be fair and equitable. The budgeting process must also be participatory, in that, those who will be held accountable for the results are also involved in the determination of the resource allocation.
Application of ZBB: North American Private Sector
Authors: Ralston Bill
Published: January 2008

Introduction The purpose of this article is to examine the literature with respect to the application of ZBB in the private sector and by so doing determine the results obtained from the application. In reviewing the literature, reference will be made to the comparison of private and public sector ZBB; claims and criticisms made by private sector organisations; and a summary of the survey findings conducted in the private sector.
Application of ZBB: North American Private Sector (Federal, State, and Local Government)
Authors: Ralston Bill
Published: January 2008

The purpose of this article is to review the surveys and comments made with respect to ZBB applications in the Federal, State, and Local Governments. Hammond and Knott (1980) like their mentor and colleague Wildavsky are very critical of ZBB in the public sector, claiming that it does not work, or is modified to such a degree that it is tantamount to TIB. They also agree with Anthony (1977) when he remarks that “the new parts (of ZBB) are not good, and the good parts are not new….ZBB has so metamorphosed into incremental budgeting (TIB) that the only thing left is its smile — floating in the air”.
Uncertainty and the Theory of Choice in Microeconomics
Authors: Ono Hiroshi
Published: January 2008

Decision making under uncertainty has evolved as an important focus of interest by economists and others who wish to improve the performance of the firm and the individual, Bernoulli (1954), Ramsey (1931) and von Neuman‐Morgenstern (1944) provide us with the basic maximizing rule of normative choice behaviour under uncertainty as embodied in expected utility maximization (EUM). Typically we can posit that an individual allots utility estimates to each alternative in his opportunity set and chooses the mix which maximises expected utility. However, the EUM rule can provide an optimum selection criterion and what this paper offers is a survey and critique of the EUM as it applies to the microeconomic foundation of the theory of the firm (sections 2 through 5).
Entry into Competitive Industries as Affected by Risk Aversion
Authors: Fooladi Iraj
Published: January 2008

Most textbooks discuss the problem of entry into competitive industries for a deterministic environment. It is argued that the opportunity of earning an economic profit leads to the expansion of existing firms as well as to the entry of new firms. This process continues until entry no longer produces abnormal profits. Whenever losses exist, the forces work in the opposite direction, and some firms leave the industry. Thus, in the long run economic profits are zero.
Risk in Capital Investment Proposals: Three Viewpoints
Authors: Hull John C.
Published: January 2008

In the last twenty years or so there have been many developments in Finance Theory which have increased our understanding of the nature of the risk in a capital investment project. In order to understand these developments it is important to realise that risk can be defined from a number of different viewpoints. This paper will discuss three of these viewpoints. First, it will consider the total risk of a project. This can be thought of as the risk from the viewpoint of a project manager whose career progress depends entirely on the performance of the project. It will then consider risk from the viewpoint of the company and, finally, move on to consider risk from the viewpoint of a well diversified shareholder in the company.
Portfolio Modelling and the Characteristics Approach
Authors: Dodds Colin
Published: January 2008

The developments in modern portfolio theory have had a significant impact on the literature in the area of investment management and whilst many investment analysts have still to be convinced of the merits of the beta of a stock, the principles of diversification within a portfolio of ordinary shares are generally accepted. Investors, however, whether institutional or as individuals, generally hold diversified portfolios across a variety of asset classes. Although the literature here becomes a lot thinner, there are broadly two main approaches. There is what we can refer to as the “traditional” approach which develops a single period model of the Tobin‐Markovitz type. The hallmark of these is the analytical rigour they pursue with a range of simplifying assumptions and the bulk of work on banks and more recently life insurance companies has been based on this approach. The alternative approaches which permit the inclusion of institutional facets of behaviour that appear to determine their behaviour are referred to as ‘ad hoc’ models because they utilise various aspects of the ‘traditional’ portfolio model, including “stock” as well as pure “flow of funds” models. Work on life insurance companies and building societies has been performed utilising such approaches.
More on the Impact of the Three Mile Island Nuclear Accident on the Risk and Return of Electric Utilities
Authors: CHEN K.C. , LINKE CHARLES M. , KENTON ZUMWALT J.
Published: January 2008

The purpose of this paper is to examine the impact of the March 28, 1979 accident at the Three Mile Island (TMI) nuclear power facility on the risk and return of General Public Utilities (TMI's owner) and other electric utilities heavily invested in nuclear power facilities. The results have implications for the returns required by investors and, therefore, on the economic viability of nuclear power for electricity generation. A recent article by Bowen, Castanias, and Daley used cumulative abnormal residual (CAR) analysis to examine the impact of the TMI accident on the electric utility industry. However, as has been shown by Larcker, Gordon, and Pinches, CAR results may be misleading due to systematic risk changes and autocorrelation in the data. Intervention analysis is proposed as an alternative to CAR analysis. This paper compares the results of a traditional cumulative abnormal residual analysis with the results of intervention analysts. It is found that the CAR analysis indicates abnormal negative returns occurred immediately after the TMI accident. However, intervention analysis shows the assumptions necessary for the CAR method to be appropriate are violated. When adjustments are made for a shift in systematic risk and autocorrelation, no abnormal returns are observed for GPU, for other utilities with nuclear facilities or for non‐nuclear utilities. These results are in conflict with those reported by BCD.
Inflation and Regulatory Lag
Authors: NORGAARD RICHARD , RILEY MICHAEL
Published: January 2008

Regulatory lag is that time between a utility's request for new rates and the granting of the rates by utility commissions. The impact of inflation and regulatory lag is presented. The relationships between regulatory lag, asset life, construction costs and utility return requirements are examined with implications for utility management, shareholders and consumers. Possible solutions to the problem of regulatory lag result. A major conclusion is that regulatory lag causes utility managers to act inefficiently and increase consumer costs to the point where the elimination of regulatory lag would be beneficial to consumers as well as investors.
Optimal Capital Structures for Regulated Public Utilities
Authors: PATTERSON CLEVELAND S.
Published: January 2008

Between the milestones represented by Modigliani and Miller's (1958, 1963) seminal papers and Miller's (1977) and Myers' (1984) Presidential Addresses to the American Finance Association, there has been a vast outpouring of theoretical and empirical articles dealing with the question of whether or not a “best” capital structure exists and, if it does, how it is determined. In most theoretical models, the “best” capital structure is defined to be that which maximizes the total market value of a firm's securities although Donaldson (1969), Patterson (1984) and others have provided survey data which indicate that this frame of reference and its attendant logic may not be the most relevant one for financial managers.
Electric Utility Diversification and Efficient Capital Markets
Authors: WELCH JONATHAN B.
Published: January 2008

Electric Utility Diversification and Efficient Capital Markets Over 60% of investor owned electric utilities have experimented with diversification into lines of business other than the traditional generation, transmission, and distribution of electricity. They diversify for a variety of reasons, but a primary goal is to improve their overall financial performance. Existing studies have found that diversified utilities outperform non‐diversified utilities. Measures of performance have included EPS growth, price‐earnings multiples, market‐book ratios and internal rates of return. However, many of these studies do not compare performance on a risk‐adjusted basis nor indicate whether differences are statistically significant. In contrast, this study compares performance using the efficient market hypothesis. Regression results indicate that there is no significant difference in risk between portfolios comprised of diversified utilities and non‐diversified utilities. Furthermore, no significant difference in return was observed. The performance of the two portfolios does not appear to differ in risk or return. These results tend to support the efficient market hypothesis concerning stockholders' inability to gain an advantage from publicly available information. Differences in company performance that are anticipated and already reflected in stock price do not result in differences in returns to stockholders.
The Cost of Capital of Multinational Companies Facts and Fallacies
Authors: Baker James C.
Published: January 2008

Capital budgeting has been a major topic of the finance literature since Joel Dean's book was published in 1951. Since then, several books and dozens of articles have been published about every aspect of this finance function. So many surveys of capital budgeting techniques used by companies have been administered by researchers that even the surveys have been evaluated.
Foreign Exchange Risk in International Insurance and Reinsurance
Authors: Cozzolino John M. , Jacque Laurent L.
Published: January 2008

Insurance and Reinsurance companies, by underwriting risk portfolios not only across traditional insurance categories but also across national currencies, are assuming a new form of financial risk for which they have not yet developed the necessary risk management tools.
Multinational Corporation and National Regulation: An Economic Audit
Authors: Shapiro Alan C.
Published: January 2008

Intensified internal social needs and changed expectations of the role of government obligate governments everywhere today to accept responsibility for an increasing number of economic and social objectives. National economic goals are defined and policies devised to further these goals. As a principal agent of economic change, the multinational corporation (MNC) is frequently the target of these economic policies. However, the multinational corporation has its own objectives and concerns. With its numerous alternatives and greater flexibility in reallocating resources, the MNC will usually respond differently to government policies than will purely domestic corporations. Yet all too often governments misunderstand the nature of the multinational corporation and devise regulatory policies which have unanticipated, even undesirable, consequences. A vicious cycle then ensues as governments attempt to regulate MNC behavior still further.
A Comparative Study of the Forecasting Accuracy of Holt‐Winters and Economic Indicator Models of Earnings Per Share For Financial Decision Making
Authors: Brandon Charles , Jarrett Jeffrey E. , Khumawala Saleha B.
Published: January 2008

Earnings forecasts provide useful numerical information concerning the expectations of a firm's future prospects and indicate management's ability to anticipate a firm's changing internal structure and external environment. The reasons for studying the accuracy of earnings forecasts is due to the Securities and Exchange Commission's position on financial forecasts and the issuance of a Statement of Position by the AICPA. These statements are important since they, in part, have motivated researchers to the importance of forecasting financial information. Consequently, if the disclosure of earnings forecasts in financial reports is permissable, the improvement of financial forecasts should be one of the primary concerns of the AICPA, the SEC, and numerous other interested groups.
A Study of Forecast Error and Covariant Time Series to Improve Forecasting for Financial Decision Making
Authors: Jarrett Jeffrey E. , Khumuwala Saleha B.
Published: January 2008

Earnings forecasts provide useful numerical information concerning the expectations of a firm's future prospects and indicate management's ability to anticipate a firms changing internal structure and external environment. The accuracy of these earnings forecasts that has been given so much attention is due to the S.E.C.'s position on financial forecasts and the issuance of the Statement of Position by the AICPA. These statements are important since they, in part, have motivated researchers to the importance of forecasting financial information. Consequently, if the disclosure of earnings forecasts in financial reports is permissable, the improvement of financial forecasts should be one of the primary concerns of the AICPA, the SEC, and numerous other interested groups.
Modeling Gold Price Movements and Forecasts
Authors: Chen Shaw K.
Published: January 2008

Factors which have contributed to gold price fluctuation include the interaction between gold demand and supply, government intervention, uncertainty of the world political environment and global economic stability. Previously researchers looked at modeling the variation in gold price movements. Williams (1972) used a pure descriptive way to review the activities of the gold market during the period from 1968 to 1972, a time when great changes in gold prices occurred. He asserted that the private gold markets are relatively unstable, and that gold prices may show a rapid rise under conditions of crisis or acute uncertainty. In Williams' study, no precise relationship or functional forms were employed to explain the fluctuation of gold prices.
Managing Corporate Tax
Authors: Lister Roger J.
Published: January 2008

The theme of this issue of Managerial Finance is managing corporate tax. Accompanying contributions address capital budgeting, financing, dividends, and financial reporting.
The Impact of Taxation on the Capital Budgeting Decision of Companies
Authors: Kennedy J.A. , Sugden K.F.
Published: January 2008

In recent decades a vast amount of academic ink has been spilled in theorising as to how companies should go about making capital investment decisions. Comparable effort has been expended in carrying out surveys to ascertain whether the academic prescriptions are being followed in practice. However, consideration of the theoretical and actual roles of taxation in the capital budgeting decision have formed a relatively small part of these deliberations. The purpose of this paper is to consider these roles.
Dividends and Taxation
Authors: Ormrod Phillip
Published: January 2008

The purpose of this paper is to examine current thinking and evidence on the extent to which taxation is, or should be, an influence upon dividend policy. To this end, the paper has been divided into two parts. The first reviews the range of normative stances and the empirical evidence in respect of each stance. Discussion mainly addresses large listed companies in the US and, to a lesser extent, the UK. The second part of the paper is based on more practical issues. This focuses attention on smaller, owner‐managed companies, for which there is less empirical evidence relating to dividend policy. This analysis of smaller companies is restricted to the UK taxation system only.
The Financial Reporting Aspects of Corporate Tax Management
Authors: Eckersall Patricia J.
Published: January 2008

The primary purpose of this article is to look at the manner in which the tax management aspects of a company's performance are presented in the financial statements.
SHARE PRICE LEVEL AND RISK: IMPLICATIONS FOR FINANCIAL MANAGEMENT
Authors: Dubofsky David A. , French Dan W.
Published: January 2008

The study of the variance of stock returns has expanded considerably in recent years, and much of the evidence indicates that there is an inverse relationship between the level of the stock price and corresponding estimated variance of returns. Christie (1982) shows that between 5 and 31% of the variation in actual returns variance can be explained by financial leverage, depending on the method used to test the relationship ((1982), Table 4). This leaves a sizable chunk of the relationship unexplained.
BANKRUPTCY AVOIDANCE AS A MERGER INCENTIVE
Authors: Billingsley Randall S. , Johnson Dana J. , Penny Marquette R.
Published: January 2008

Numerous motives for merger have been proposed and empirically evaluated. While the avoidance of bankruptcy has been suggested as a plausible motive for merger in the financial literature, this motive has been the object of scant empirical investigation. Although recent empirical evidence supports the existence of a bankruptcy motive, no research effort has yet identified those factors which explain why a financially distressed firm is acquired rather than destined to ultimate bankruptcy. The current study seeks to contribute to the literature on bankruptcy avoidance as a merger incentive by developing a logit model which explains, estimates and predicts the probability that a financially troubled firm will be acquired rather than end up bankrupt.
SAFETY MARGINS AND CAPITAL BUDGETING CRITERIA
Authors: Miller Edward M.
Published: January 2008

Textbooks often portray capital budgeting as a rather mechanical process: Top management decides whether or not to accept a project by requesting an estimate of net present value from its staff and to see if the number is positive or negative. This paper suggests that the textbook net present value rule is not optimal if the competitive market assumption holds. Better decision rules state minimum acceptable safety margins and may take the form of stating a minimum acceptable profitability ratio.
THE EVOLVING ROLE OF STRATEGY CONSIDERATIONS IN THE THEORY AND PRACTICE OF FINANCE
Authors: Martin John , Kensinger John
Published: January 2008

Perhaps there is no area in which the practice of financial management and its academic treatment are more divergent than in the area of corporate strategy or strategic planning. The practice of financial management or financial engineering has for many years been involved in assessing various strategies and analyzing investment alternatives with dominant strategy themes (e.g. investments in research in development). Their academic counterparts, however, have had great difficulty relating the strategy literature to the finance literature. There are a number of reasons for this but perhaps the most important one has been the fact that the strategy and finance literatures have grown up with very different heritages. Financial economists, who provide the theoretical structure for the practice of financial management, have a deeply rooted heritage in the structure of the neoclassical theory of the firm and have traditionally been extremely reluctant to branch out to new areas unless those areas could somehow be incorporated into that particular theoretical structure. This seems to be changing. Part of the reason has been the movement of the strategy literature toward finance as is evidenced in the work of Michael Porter who has adopted the language of the theory of the firm to address the problem of corporate strategy. In addition, part of the movement toward convergence is due to a similar movement of the finance literature toward consideration of strategy issues using contingent claims models as is exemplified in the work of Stewart Myers. In this paper we begin to weave the story of agreement between strategy and finance. Furthermore, we identify some of the issues that must be addressed as this process of convergence continues.
THE CAPITAL BUDGETING PROCESS OF LARGE U.S. FIRMS; AN ANALYSIS OF CAPITAL BUDGETING MANUALS.
Authors: Mukherjee Tarun K.
Published: January 2008

In a departure from the usual questionnaire‐based survey, this study attempts to understand the capital budgeting process of large U.S. firms by examining capital budgeting manuals that Fortune 500 companies use to explain their respective capital budgeting policies and procedures. The paper presents some general observations regarding the capital budgeting process in a three‐stage framework: planning, appropriation, and audit.
AGENCY THEORY AND ORGANIZATIONAL ANALYSIS
Authors: McGuire Jean B.
Published: January 2008

Jean McGuire is Associate Professor of Management in the Faculty of Commerce at Concordia University, Montreal. She received her Pd.D. degree from Cornell University. Her research interests include organizational power, politics and conflict, executive compensation, and the measurement of firm performance.
MANAGERIAL PERFORMANCE EVALUATION: A DECISION MODEL FOR STOCKHOLDERS
Authors: Raggad Belgacem
Published: January 2008

Managerial ability is influenced by many factors: personal attributes (like leadership, creativity, aggressiveness, communication skills, etc….), education, and experience. The paper proposes a model that links the managerial ability to the firm's capacity to grow and the external environment. The intention scale technique mostly used by economists and market researchers for demand prediction and product selection is introduced as a tool to test managerial ability. The paper develops an analytical model to help stockholders in evaluating the manager's potential and derives an optimal rule for the hiring decision. Managers are classified into three categories namely type‐I, type‐II, and type‐III managers. Type‐I managers meet most of the firm's criteria. They are hired immediately. Type‐II managers are those who fall short of the firm's ideal criteria for a manager, but, meet some of its criteria. Their abilities cannot be determined without the ability test. They are hired only if they pass the screening test. Type‐III managers do not meet the firm's criteria and are, therefore, rejected without some additional screening. The current practice of managerial screening allows only two choices: either hire a manager or reject him. This practice is valid for type‐I and type‐III managers only. Type‐II managers need additional screening as proposed in this paper.
EXECUTIVE COMPENSATION AND PERFORMANCE OF FIRMS.
Authors: Chaubey Manmohan D. , Kulkarni Mukund S.
Published: January 2008

Recently the topic of executive compensation has received considerable attention in the popular press as well as in the academia. It is argued that “… top executives would get paid handsomely for first class performance, and would lose out when they flopped.“ This study is an attempt to find out whether executive compensation is in fact related to firm performance. Specifically, this study investigates whether the determinants of executive compensation in firms with above average performance are different from those in firms with below average performance. The underlying hypothesis being that the executive compensation in the above average firms is related to performance variables.
STATE TAKEOVER STATUTES AND CORPORATE BOARD COMPOSITION:
Authors: Ma Christopher K. , Lindsley David A. , Rao Ramesh P.
Published: January 2008

Extant literature identifies board composition and the market for takeovers as two important measures for controlling the agency problem associated with top management. This study tests the substitution hypothesis that outside directors on the board and the effectiveness of takeover markets are substitutes for each other. This is done by first identifying a group of states that are characterized as weak takeover markets on the basis of their state takeover statutes. It is then shown that for a sample of firms in these states the stock markets react negatively to the election of an insider to the board, while no significant reaction is noted when an outsider is elected to the board. These results suggest that the election of an insider to the board signals a reduction in the monitoring power of the board over top management. We interpret this result as consistent with the substitution hypothesis.
Evaluating the Lease or Purchase Decision
Authors: Drury Colin
Published: January 2008

It is apparent from the empirical studies in the UK and USA that incorrect approaches are frequently used to evaluate finance leases. Sykes (1975), Hull and Hubbard (1979) and Drury and Braund (1989) in the UK and Ferrara et. al., (1980) in the USA have expressed concern regarding the methods which companies use to evaluate finance leases. For example Sykes (1975) found that only 19% of UK companies used DCF methods to evaluate leases. Hull and Hubbard (1979) observed that many companies used the implied rate of interest quoted from the lessor's leasing tables and compared this with the borrowing rate. However, these tables did not include tax cash flows and were therefore only applicable to a permanent non‐taxpaying organisation. In the most recent study Drury and Braund (1989) found that 41% of the 300 firms responding to a questionnaire used the wrong discount rate to evaluate finance leases and a further 14% used non‐discounting methods. The objective of this article is to explain how the lease or purchase decision should be evaluated. It will be shown that leasing should be compared with borrowing and three different methods of correctly evaluating the lease or borrow decision will be presented and reconciled.
THE COST OF HIGH‐YIELD BOND FINANCING
Authors: Rao Ramesh P. , Lindsley David A. , Ma Christopher K.
Published: January 2008

In this paper, we present a model to determine the interest cost of high‐yield (HY) bond financing. We first denmonstrate that, with a relatively high coupon rate, HY bonds have a significantly higher call risk than investment‐grade bonds, and the effective life of the bond is closer to the call deferment period. Consequently, the interest cost is more affected by the duration measure than by the years to maturity, or the call feature. Furthermore, the HY bond market is segmented by the purpose of the proceeds. The interest cost is, on average, 27 basis points higher if the fund is used to finance takeover activities. The third difference we show is that firms have to pay 11 basis points more in interest costs for every additional 1 million HY bond financing. We attribute this exception to the expected illiquidity of large‐issue HY bond in the secondary market when default risk premium increases. Furthermore, the HY bond interest cost is less sensitive to market uncertainty than the cost of treasury bonds, since bonds with high coupon rates have low price risk when the interest rate fluctuates.
THE EFFECTIVE YIELD TEST, THE MARKET PARITY TEST, AND EARNINGS PER SHARE
Authors: Kuo Horng‐Ching
Published: January 2008

This study shows that the classification of convertible bonds as common stock equivalents for computing primary earnings per share made by the effective yield test does not closely relate to that made by the market parity test as envisioned by the Accounting Principles Board. Yet, there is a large degree of correspondence between the classifications made by the two tests when the tests are conducted on a year‐by‐year basis. Furthermore, the results of the study suggest that the two tests' predictive power for conversion of convertible bonds can be substantially improved if the tests are periodically performed. These findings may be indicative of the permanent classification problem that could cause the test results to be inaccurate.
CORPORATE FINANCING OFFOREIGN‐BASED FIRMS: A TEST OF THE INFORMATION ASYMMETRY HYPOTHESIS
Authors: Ma Christopher K. , Rao Ramesh P. , Wenchi Wong G.
Published: January 2008

In the last decade, involvement of foreign‐based firms in the United States through setting up of joint ventures and subsidiary operations has increased tremendously. Many of these subsidiaries have securities traded in the local market but have the added flexibility of raising capital outside the United States through their foreign‐based parent organisations. This paper focuses on the capital acquisition process of these foreign‐based firms in the U.S. capital markets. The optimal selection of the format of the capital financing depends on the ultimate impact on shareholders' wealth. The decision is non‐trivial since there is substantial evidence to suggest that the choice and method of capital acquisition process convey new information to investors and therefore affect stock prices. As part of this process, it is important to understand the market reaction to announcements of public issues of various securities offerings.
MARKET IMPERFECTIONS AND THE COST OF CAPITAL
Authors: Chen K.C. , Shahrokhi Manuchehr
Published: January 2008

This paper has demonstrated the impacts of default risk, personal taxes, leverage‐related costs, and the limited liability of security‐holders on the systematic risk of equity. Since more than one of the aforementioned market imperfections exists in the real world, the results derived in this paper have been shown to be more general in specification than Hamada and Rubinstein's traditional formulation. The analysis also demonstrates that failure to recognize these market imperfections tends to bias the estimation of systematic risk.