bluuebunny/crossref_metadata_2025_split huggingface dataset:
THE ROLE OF CORPORATE GOVERNANCE IN SOUTH KOREAN ECONOMIC REFORM
Authors: Scott Kenneth 
Published: April 2005

In South Korea, as in some other troubled Asian economies, banks and large public corporations have been run more in the interest of the government and the controlling share‐holder group than to maximize efficiency and overall shareholder wealth. Any serious attempt to reform the South Korean economy must thus include significant changes in its system of corporate governance.After discussing in general terms how corporate ownership and control can affect economic performance, this article examines the corporate governance institutions that prevail in different countries, with particular attention to the U.S., Japan, and Germany. From such comparative analysis it then develops a set of criteria for appraising the effectiveness of corporate governance systems that are applied to the specific case of South Korea. The article concludes with number of suggestions for reforming the South Korean corporate governance system, including:

greater legal protection for minority shareholders from transactions involving potential conflicts of interest; and
strengthening of the incentives of management and large corporate holders, such as house or main banks, to maximize value (as the author notes, “charging management or the board with a legal mandate to ‘balance’ the interests of various constituencies or stakeholders is merely to diminish any legally enforceable responsibility to shareholders”).

As the article notes in closing, the main beneficiaries of such governance reforms will not be the new shareholders–including those foreign investors who might be persuaded to buy the stocks–but rather the existing owners, whose shares will command a higher price from “outside” investors. And the greatest beneficiary will be the South Korean nation as a whole, since the resulting improvements in corporate performance and reductions in cost of capital will increase productivity and international competitiveness.
EMPLOYEE STOCK OWNERSHIP IN ECONOMIC TRANSITIONS: THE CASE OF UNITED AIRLINES
Authors: Gordon Jeffrey N. 
Published: April 2005

This article argues that employee stock ownership transactions (ESOTs) may have decisive advantages in addressing the transition problems associated with significant economic change. Equity ownership by employees can increase value not only because of the better incentive alignment achieved by making employees major stockholders, but also because equity has special value in solving some of the bargaining (i.e., information) problems that can make it especially difficult to renegotiate the em‐ployees' contracts with the firm in volatile economic environments.One important question raised by ESOTs is whether they produce a merely transitional organizational form or a relatively permanent form for managing economic change. Do they amount to simply a set of one‐time adjustments of economic claims so that we should expect a reversion back to public shareholder ownership? Or do these transactions produce a durable organizational form that proves more effective in negotiating an ongoing series of transition problems?After a general analysis of the potential advantages of ESOTs in cases of economic transition, this article explores this question by examining one particularly interesting example, the recent employee acquisition of majority equity in United Air Lines. The parties in the UAL transaction, which can be traced to the transition shock of airline deregulation in 1978 and the series of competitive struggles that followed, contemplated employee ownership as more than a transitional device. The deal is structured to lock up employee stock in an ESOP and to provide strong employee governance rights for the next 20 years. One of the objectives of the ESOT was to catalyze a cultural change in UAL's operations so that the airline could become more competitive, not just through wage reductions but through operational efficiencies that would require a higher level of employee cooperation.The evidence to date suggests that UAL has become a more efficient competitor, but also that governance pressure from the employees where their economic interests are directly at stake is potentially destabilizing. The UAL case shows that adjustment to prosperity can raise problems almost as difficult as adjustment to economic adversity.
THE LEGALITY OF THE SHAREHOLDER RIGHTS BY‐LAW IN DELAWARE: PRESERVING THE MARKET FOR CORPORATE CONTROL
Authors: Macey Jonathan R. 
Published: April 2005

Just as some lawyers almost killed the takeover market with the invention of the poison pill in the 1980s, others are now about to reinvigorate it with another legal invention. The “shareholder rights bylaw,” which promises to be the next major legal battleground in the market for corporate control, aims to eliminate the current ability of target company boards of directors to block changes of control by keeping their poison pill defenses in place. The new bylaws require the poison pill (and other defensive measures) to expire automatically whenever the firm receives an allcash offer for 100% of the firm's stock at a price at least 25% above the prebid market price. The firm can keep its poison pill, but only if shareholders vote to keep it after receiving the offer.Although the legality of the share‐holder rights bylaw has been challenged as an undue infringement on boards of directors' power to run companies, this article argues that their legality will be upheld for three reasons:

First, shareholder rights bylaws merely reinforce the corporate manager's responsibility to manage the firm to maximize shareholder value.
Second, Delaware and most other jurisdictions give shareholders the specific right to amend the bylaws of a corporation; and the shareholder rights by‐law is a straightforward exercise of this explicit right granted to shareholders.
Third, the adoption of shareholders rights by‐law does not prevent the board of directors from advising share‐holders to vote to reject a takeover bid, nor does it prevent shareholders from giving management the authority to use defensive mechanisms such as the poison pill.

As the article concludes, upholding this right of shareholders to choose whether a poison pill is used to block a takeover is critical to the vitality of the takeover market and, hence, to the preservation of the agency relationship between directors and shareholders. Upholding this right may also prove critical to Delaware's ability to maintain its predominance in the market for corporate chartering.
CORPORATE CASH HOLDINGS
Authors: Opler Tim , Pinkowitz Lee , Stulz René , Williamson Rohan 
Published: April 2005

There have been several cases in recent years—most notably, Chrysler—in which shareholders have objected to the level of companies' holdings of cash and other liquid assets. This paper describes the authors' study of the determinants of liquid asset holdings by publicly traded U.S. firms and how these holdings change over time. For those companies that appear to hold excess cash, the study also attempts to investigate whether such companies have a tendency to reduce value by “overinvesting”—a tendency described in the academic finance literature as the “free cash flow problem.”According to the study, the most important determinants of corporate cash holdings are size, risk, and the extent of the firm's investment opportunities, with smaller, riskier, and high‐growth firms holding larger amounts of cash as a percentage of total (noncash) assets. These results are consistent with corporate decisions to hold liquid assets in order to preserve the firm's ability to make strategic investments when operating cash flow turns down and outside funds are expensive.The authors also report that most companies with large amounts of excess cash tend to acquire it mainly by accumulating internally generated cash flows, and not by issuing securities. Perhaps surprising, the study also finds that spending on new projects and acquisitions is only slightly higher for firms with excess cash—and that such firms also tend to have higher payouts to shareholders in the form of dividends or stock repurchases. Thus, there is little evidence in this study of a free cash flow problem, as well as some indication that managers are aware of and attempt to address the problem.
REAL OPTIONS: STATE OF THE PRACTICE
Authors: Triantis Alex , Borison Adam 
Published: April 2005

In the mid‐1980s, financial economists began building option‐based models to value corporate investments in real assets, laying the foundation for an extensive academic literature in this area. The 1990s saw several books, numerous conferences, and many articles aimed at corporate practitioners, who began to experiment with these techniques. Now, as we approach the end of 2001, the real options approach to valuing real investments has established a solid, albeit limited, foothold in the corporate world.Based on their recent interviews with 39 individuals from 34 companies in seven different industries, the authors of this article attempt to answer the question, “How is real options being practiced, and what impact is it having in the corporate setting?” The article identifies three main corporate uses of real options—as a strategic way of thinking, an analytical valuation tool, and an organization‐wide process for evaluating, monitoring, and managing capital investments. For example, in some companies, real options is used as an input into an M&A process in which rigorous numerical analysis plays only a small role. In such cases, real options contributes as a qualitative way of thinking, with little formality either in terms of analytical rigor or organizational procedure. In other firms, real options is used in a commodity trading environment where options are clearly specified in contracts and simply need to be valued. In this case, real options functions as an analytical tool, though generally only in specialized areas of the firm and not on an organization‐wide basis. In still other companies, real options is used in a technology or R&D context where the firm's success is driven by identifying and managing potential sources of flexibility. In such cases, real options functions as an organization‐wide process with both a broad conceptual and analytical core.The companies that have shown the greatest interest in real options generally operate in industries where large investments with uncertain returns are commonplace, such as oil and gas, and life sciences. Major applications include the evaluation of exploration and production investments in oil and gas firms, generation plant investments in power firms, R&D portfolios in pharmaceutical and biotech firms, and technology investment portfolios in high‐tech firms.While the approaches to implementation are quite varied, there appears to be a common path to the successful adoption of real options. The key steps of the adoption process are: (1) conducting pilot projects; (2) getting buy‐in from senior‐level and rank‐and‐file managers; (3) codifying real options through expert working groups, specialist training, and customization; and (4) institutionalizing and integrating real options firm‐wide. After citing best practices for each of these four steps, the authors close by predicting that a “network” effect and acceptance by Wall Street will serve as catalysts for more widespread corporate use of real options.
FIRST‐MOVER (DIS) ADVANTAGE AND REAL OPTIONS
Authors: Cottrell Tom , Sick Gordon 
Published: April 2005

Fear of losing first‐mover advantages has caused many corporate strategists to ignore real options analysis and simply go ahead with any project that they think is expected to have a positive net present value. But first‐mover advantages are not nearly as valuable as most strategists tend to assume. This article weighs the expected value of first‐mover advantages against the benefits of the real option arising from delay and flexibility. The real options model recognizes the value of delaying projects until important sources of uncertainty and risk can be resolved.After reviewing two well‐known cases of successful second movers—the triumph of VHS over Betamax in VCRs and Microsoft's remarkable late software entries—the authors go on to present more broadly based historical evidence for their view that first‐mover advantages often fail to confer lasting value. The article closes with an assessment of first‐mover advantages in the new economy, including a brief look at recent developments in the Internet and telecom sectors.
VALUE CREATION AT ANHEUSER‐BUSCH: A REAL OPTIONS EXAMPLE
Authors: Arnold Tom , Shockley Richard L. 
Published: April 2005

The management of Anheuser‐Busch created $11.5 billion of shareholder value between 1996 and 1998, a period in which U.S. demand for beer was flat and the company's profits grew only modestly. Of that $11.5 billion, the authors estimate that nearly $10 billion can be attributed to the growth options created or expanded by the company during that period. While divesting itself of unrelated businesses, such as snack foods, Busch stadium, and the St. Louis Cardinals baseball franchise, the company began purchasing minority equity interests in brewing concerns in markets with growing demand for beer, including Mexico, Brazil, Chile, Argentina, and the Philippines.The main undertaking of the paper is to use the real options valuation method to estimate the growth option value that Anheuser‐Busch has created through its investments in joint ventures in foreign markets. The authors focus specifically on a joint venture in the Argentina/Chile market, and argue that this arrangement gives the company the flexibility to invest in a complete brewing and distribution system in that market after learning about the market's potential. In other words, the joint venture creates a call option on the Argentina/Chile market. Traditional DCF analysis, which ignores the flexibility in the strategy, assigns a negative NPV to the joint venture. But explicit recognition of the “option‐ality” built into the investment results in a very different valuation—as well as a plausible explanation of the growth option value in the company's stock price.As the Anheuser‐Busch example also illustrates, valuation of the real option depends critically on the assumption about the volatility of the future value of the investment projects. The authors provide an intuitively useful way for managers to examine their own volatility assumptions—one that draws on the probability assessments that are part of the well‐known Black‐Scholes model.
VALUING REAL OPTIONS: CAN RISK‐ADJUSTED DISCOUNTING BE MADE TO WORK?
Authors: Hodder James E. , Mello Antonio S. , Sick Gordon 
Published: April 2005

This paper examines three alternative approaches to valuing real options: (1) the standard option pricing technique using “risk‐neutral” probabilities; (2) the use of risk‐adjusted discount rates; and (3) discounting certainty‐equivalent values with a riskless discount rate. As suggested by the title, a question of particular interest is whether an approach based on risk‐adjusted discount rates can be “made to work” for valuing options. The answer is yes. Indeed, the authors show that any of the three approaches will provide a correct valuation if properly employed.Nevertheless, there are important differences in the information requirements associated with each of the three methods. Another important issue is the relative degree of difficulty in calculating the correct option value. When these two considerations are taken into account, the risk‐neutral option pricing procedure generally proves to be the preferred method. It tends to be computationally more convenient—often much more convenient—and to require less information than either the risk‐adjusted discounting or certainty‐equivalent procedures.
MERTON MILLER'S CONTRIBUTIONS TO MODERN FINANCE
Authors: Stulz René M. 
Published: April 2005

Winner of the 1990 Nobel Prize in Economics, and widely regarded as the “father of modern finance,” the University of Chicago's Merton Miller died last June at age 77. This article attempts to sum up Miller's career in terms of a single governing principle: the role of arbitrage in ensuring the “efficiency” of financial markets and, more generally, the effectiveness of such markets in promoting economic growth and creating social wealth.Starting with the formulation of Proposition I (also known as the capital structure irrelevance proposition) with Franco Modigliani in 1958, Miller's research over the next 40 years is seen as applying—with remarkable clarity and consistency—the principle of arbitrage to the study of many aspects of financial markets. Miller's main accomplishment, according to the author, is to have made arbitrage arguments the cornerstone of modern finance. The arbitrage proof of Proposition I introduced a new standard in finance—namely, that any finding in financial research deserving serious consideration must have the critical property that it cannot represent opportunities for riskless profit by investors. And the article goes on to show that arbitrage is a constant theme in Miller's writings, from his work in corporate finance to his later studies of financial innovation, derivatives markets, and financial crashes and crises.Having started and presided over the transformation of financial studies from a “glorified apprenticeship system” into a scientific discipline, Miller devoted much of the last 15 years of his life to a different, though clearly related undertaking: the defense of financial markets against the attacks of politicians and regulators, as well as businessmen intent on stifling competition (including hostile takeovers). Whether it was the alleged role of the stock index futures markets in the 1987 market crash, the claims of “overleveraging” in the LBOs of the '80s, or the derivatives fiascos in the mid‐'90s, Miller was there to provide careful economic analysis of the problems. In the early '90s, he explained why the “myopia” of the U.S. stock market was likely to cause far fewer problems than the “hyperopia” induced by regulatory distortions of the Japanese market. And in one of his last speeches, Miller showed that the primary cause of the recent Asian crisis was not “too much reliance on financial markets,” as claimed by politicians and the popular press, but “too little”—in particular, the heavy dependence on bank financing (particularly state‐owned banks) and the failure to develop alternative sources of capital that continue to depress the Japanese economy.
TESTING HEDGE EFFECTIVENESS FOR FAS 133: THE VOLATILITY REDUCTION MEASURE
Authors: Kalotay Andrew , Abreo Leslie 
Published: April 2005

Although the authors of this article praise the spirit of the new FASB guidelines for hedge accounting, they find flaws in the recommended tests for determining if a hedge qualifies for such treatment. In some cases, the tests recommended by the FASB pass hedges that clearly should fail, and in others they fail hedges that should be accepted. In place of the recommended testing procedures, the authors propose the use of the volatility reduction measure (VRM)—a measure that is fully compliant with the spirit of the FASB's recommendations, while correcting their major shortfalls.While the illustrations in this article are from the realm of fixed income, the VRM approach is applicable to any hedge, whether designated as “fair value” or “cash flow.” Moreover, by expressing volatility in the units of the widely used “Value at Risk” measure, VRM establishes a natural link between accounting and risk management.
GOODWILL ACCOUNTING: EVERYTHING HAS CHANGED AND NOTHING HAS CHANGED
Authors: Ellis Martin 
Published: April 2005

In issuing Statements No. 141 and No. 142, the FASB has attempted to make accounting statements better reflect the economics of the exchange of value that takes place in business combinations. At the very least, requiring a single method of accounting reduces the costs of accounting, puts all acquirers on an equal accounting footing, and removes the incentive to incur significant costs to be able to report on a pooling‐of‐interests basis.But if the FASB rules have changed significantly, investors' expectations for acquiring companies have not. Therefore, accounting rules should have no impact on acquisition pricing or structuring unless they affect cash flows. Recorded goodwill and return on capital are the artificial result of accounting rules, and largely without economic content. However, understanding the growth value implicit in the price paid is key to helping ensure that acquisitions create value. Boards of directors and executives must understand the minimum annual performance targets they have set for themselves by paying a premium to acquire a company.The ideal measure of goodwill, which has not been contemplated by the FASB, would capture the premium of the current acquisition price over the value of the target firm's current operating value—that is, the discounted NPV of its current operating cash flows. Using such an economist's definition of goodwill, financial analysts could then come up with the variable that is of greatest interest to investors‐namely, the expected improvements in operating performance that are necessary to justify the acquirer's investment in the target company. The economic framework and future growth value analysis based on EVA can be used to answer this question, regardless of the accounting rules du jour.
HOW DO CFOs MAKE CAPITAL BUDGETING AND CAPITAL STRUCTURE DECISIONS?
Authors: Graham John , Harvey Campbell 
Published: April 2005

This paper summarizes the findings of the authors' recent survey of 392 CFOs about the current practice of corporate finance, with main focus on the areas of capital budgeting and capital structure. The findings of the survey are predictable in some respects but surprising in others. For example, although the discounted cash flow method taught in our business schools is much more widely used as a project evaluation method than it was ten or 20 years ago, the popularity of the payback method continues despite shortcomings that have been pointed out for years. In setting capital structure policy, CFOs appear to place less emphasis on formal leverage targets that reflect the trade‐off between the costs and benefits of debt than on “informal” criteria such as credit ratings and financial flexibility. And despite the efforts of academics to demonstrate that EPS dilution per se should be irrelevant to stock valuation, avoiding dilution of EPS was the most cited reason for companies reluctance to issue equity.But despite such apparent contradictions between theory and practice, finance theory does seem to be gaining ground. For example, large companies were much more likely than their smaller counterparts to use DCF and NPV techniques, while small firms still tended to rely heavily on the payback criterion. And a majority of the CFOs of the large companies said they had “strict” or “somewhat strict” target debt ratios, whereas only a third of small firms claimed to have such targets.What does the future hold? On the one hand, the authors suggest that we are likely to see greater corporate acceptance of certain aspects of financial theory, including the use of real options techniques for evaluating corporate investments. But we are also likely to see further modifications and refinements of the theory, particularly with respect to smaller companies that have limited access to capital markets.