Balance Sheets Of Companies Research Articles

Financing forefront technology entrepreneurship. Issues concerning biotechnology

This paper surveys financial issues that characterise the US biotechnology scenario. They regard public institutions and companies. The financing approaches available to New Biotechnology Firms (NBFs) force them to operate in a weak competitive position vis-?-vis large companies. Allowing NBFs to somewhat uncouple their investment decisions from the impact on company balance sheet, could give a fundamental contribution to enhance their competitive capacity and fully exploit their potential. The scheme of an off-balance-sheet financing is proposed. It is of the type that regulated the Research and Development Project Limited Partnership (RDLP) in the USA till 1986 when its tax benefits were cancelled by the Tax Reform Act. After 1986, NBFs have proposed to financial markets substitutes for RDLPs, which have proved to be much less interesting to investors. Restoring the rules originally governing RDLPs could be a strategically winning move at the present stage of the biotechogenetic revolution in the USA. An earlier and shorter version of this paper was presented by the author at the Unido sponsored 14th International Conference on Management of Technology, track 12 The Integration of Technology and Business Strategies, IAMOT 2005, Vienna, Austria, May 2005.

Are you leading the way in innovation?

Innovation is the specific instrument of entrepreneurship. But how do we find the - kind of innovative ideas that - make a difference to the company's balance sheet? Problems include lengthy development times, a risk averse corporate culture, and difficulty in selecting the right ideas to commercialise. Most companies have the means to greatly boost their return on innovation and gain a competitive advantage, but few are acting with the commitment necessary to achieve it. Perhaps the most interesting finding is that there is a direct relationship between success at innovation and stock market performance. This is a timely reminder of why managers should want to be the biggest drivers of innovation in their company. The message is clear: innovation means success and managers must innovate.

Information technology and productivity: Evidence for Brazilian industry from firm-level data

This article measures the effects from the adoption of information technology (IT) tools on the productivity of workers in the Brazilian manufacturing sector. IT adoption is related to the use of information management systems by firms. The augmented Cobb-Douglas production function supports the estimation of the econometric model. We use the most complete database related to IT adoption in Brazil. Our sample includes 26,776 companies and refers to the year 2003. The data also cover key information about technological innovation, company balance sheets, labor characteristics, external performance, origin of controlling capital, sector of activity, and region of the country where the firm is installed. The results suggest that IT adoption has a positive effect on labor productivity in Brazil. © 2008 Wiley Periodicals, Inc.

Rossiisko-amerikanskaia kompaniia: Deiatel'nost' na otechestvennom i zarubezhnom rynkakh, 1799–1867 [The Russian American Company: Activity in the Home and Foreign Markets, 1799– 1867], and: Rossiia Dal'nego Vostoka: Imperskaia geografiia vlasti XIX–nachala XX vekov [Russia of the Far East: An Imperial Geography of Power from the 19th to the Early 20th Century] (review)

Reviewed by: Rossiisko-amerikanskaia kompaniia: Deiatel'nost' na otechestvennom i zarubezhnom rynkakh, 1799–1867 [The Russian American Company: Activity in the Home and Foreign Markets, 1799– 1867], and: Rossiia Dal'nego Vostoka: Imperskaia geografiia vlasti XIX–nachala XX vekov [Russia of the Far East: An Imperial Geography of Power from the 19th to the Early 20th Century] Ilya Vinkovetsky Aleksandr Iur'evich Petrov , Rossiisko-amerikanskaia kompaniia: Deiatel'nost' na otechestvennom i zarubezhnom rynkakh, 1799–1867 [The Russian American Company: Activity in the Home and Foreign Markets, 1799–1867]. 315 pp. Moscow: IVI RAN, 2006. ISBN 5940671535. Anatolii Viktorovich Remnev , Rossiia Dal'nego Vostoka: Imperskaia geografiia vlasti XIX–nachala XX vekov [Russia of the Far East: An Imperial Geography of Power from the 19th to the Early 20th Century]. 552 pp. Omsk: Izdatel'stvo Omskogo gosudarstvennogo universiteta, 2004. ISBN 5777904297. The two books under review here explore the history of Russia's Pacific Rim. The two authors, Aleksandr Petrov and Anatolii Remnev, are both historians who have come of age as scholars in post-Soviet Russia. Each has an eminent mentor (Nikolai Bolkhovitinov in Petrov's case; Boris Anan'ich in Remnev's) but also an original turn of mind and an independent record of accomplishment. Each has a foot in Russia's scholarly tradition but also opportunities to engage in international debates. Despite these commonalities, their approaches are very different. In Rossiisko-amerikanskaia kompaniia: Deiatel'nost' na otechestvennom i zarubezhnom rynkakh, Petrov has produced a financial history of the Russian-American Company (aka the Company or the RAC) from its origin to its liquidation (1799–1867). In its detailed examination of the Company's balance sheets and business interactions within Russia and with the RAC's British, American, Spanish (later Mexican), and Chinese trading partners, this book is unparalleled.1 The author rightly points out that issues of finance play background roles at best in other studies of Russian America (10–11); in Petrov's book, they finally take center stage. Considering that the RAC was indeed a commercial (or at least a semi-commercial) venture dedicated to turning a profit, this book fills an important niche. Moreover, as the [End Page 463] Company held a unique place in the history of Russian business, the story of its financial accounts will be of interest to specialists in several fields. Petrov's source base is impressive in its depth. He has examined a trove of Company-produced literature, government reports, and a selection of the business and popular press. On top of the usual rounds of major St. Petersburg and Moscow archives, his work also draws on original archival research in Irkutsk, Vologda, Velikii Ustiug, Perm', and Arkhangel'sk. Outside of Russia, Petrov has done archival work in Ukraine, Estonia, and the United States. Petrov introduces fresh sources into circulation—lists of Company shareholders perhaps most significant among them (126–27). These lists, which will be essential to any scholar researching the Company's economic and political networks, are situated among the charts that he has put together in an appendix filling pages 276–315. Drawing on those lists, Petrov is able to convey the power of family connections within the RAC. His demonstration of the persistence (for a time) of the influence and power of the "Shelikhov clan" (133–39) is one of the important findings of the book.2 Among the other valuable data contained in the appendix: details on the fluctuation in the price of Company shares; an inventory of the Company's financial assets; selected data on the Company's yearly profits; estimates of the numbers of furs exported from Russian America. All these data, along with Petrov's analysis, give us a clearer picture of what the Russian-American Company was and how it operated. On the strength of its value as an empirical source base (as well as the Company's financial history), this book will surely maintain its place as an important reference work for years to come. One of the accomplishments of Petrov's book, as it traces the history of the Company's assets and debits, is to demonstrate the Company's relative financial well-being in the years prior to its...

Corporate real estate practice in Australia

PurposeThe purpose of this paper is to investigate the corporate real estate (CRE) practices of 25 major corporations in Australia. It will study such areas as, what constitutes CRE, the performance measures used in CRE practice, CRE management units, planning horizons in CRE, owned and leased CRE, outsourcing policies for CRE, use of benchmarking measures to assess the performance of CRE, use of “gain share” practices in CRE operations, use of flexible CRE practices and the role of cost or profit centres in corporations.Design/methodology/approachA data base was established using 25 companies (corporations) taken from the top 200 listed in the Australian Financial Review. Contact was made with the companies and interviews were carried out to obtain the relevant data. As well as the annual reports for the companies were analysed over the last five years to extract the necessary financial and additional property data.FindingsThe conclusions indicate that there is a great disparity between corporations. This may indicate that certain classes/types of companies do not need the CRE assets that others do. It may also indicate, as previously supported by other research, that some companies fail to capitalize on the potential of their CRE assets to increase overall return and in the long run increase shareholder value. It also revealed that most companies are disposing of property in an attempt to enhance shareholder value. This is reflected in new and innovative ways of financing CRE and moving CRE off the balance sheet.Originality/valueThis study represents the first attempt to extract data direct from company balance sheets and then carry out interviews to assess the role of CRE in company policy.

Segmentos de governança Bovespa: diferenças nos graus de conservadorismo condicional na divulgação de resultados contábeis

The research examines whether, by virtue of the assumed commitments relative to information disclosure, the public companies differentiation, carried out by the Sao Paulo Stock Exchange (Bovespa) according to distinct levels of corporate governance, pro-vokes distinction in the conditional conservatism degree (identified by the asymmetric anticipation of economic losses) of earnings reported in the respective accounting statements. The premise adopted by Bovespa is that the acceptance of differentiated informa-tion disclosure practices and ownership protection corporate rules would lead to accounting information of higher quality, with consequent: (i) risk reduction; and (ii) return increment for investors. The statements quality measurement is carried out employing measurement models of the conditional conservatism present in the accounting reports, based on the reversion of transitory compo-nents in profits and in the association of accruals with cash flows, assessed by regression using panel data. The research results confirm the raised hypothesis that there is not any differentiation in the conditional conservatism patterns of reported earnings, not evidencing timely asymmetric anticipation of economic losses in the balance sheets of public companies listed at Bovespa in any of the groups.

Modelling & Controlling Monetary and Economic Identities with Constrained State Space Models

Summary The paper presents a method for modelling and controlling time series with identity structures. The approach is presented in the context of monetary targeting where the monetary identity (e.g. reserve money equals net foreign assets plus domestic credit) is modelled using a constrained state space model and next‐period changes in domestic credit (policy variable) are estimated to reach the target level of reserve money. The constrained modelling ensures that aggregation and identity relations among items are dynamically satisfied during estimation, leading to more accurate forecasting and targeting. Applications to Germany, UK and USA show that the constrained state space model provides significant improvements in targeting and forecasting performance over the AR(1) benchmark and the unconstrained model. Reduction in the mean square error of targeting over AR(1) is in the range of 76–95% for the three countries while the gain in targeting efficiency over unconstrained modelling is between 21% and 55%. Beyond monetary targeting, the method has wide application to the dynamic modelling and control of economic and financial time series with identity and aggregation constraints (e.g. balance of payment, national income, purchasing power parity, company balance sheet).

Weighing the evidence on the relation between external corporate financing activities, accruals and stock returns

Bradshaw, Richardson, and Sloan (BRS) find a negative relation between their comprehensive measure of corporate financing activities and future stock returns and future profitability. Noticing that accounting accruals are increases in net operating assets on a company's balance sheet, we question whether it is possible to distinguish between the ‘external financing anomaly’ documented by BRS and the ‘accrual anomaly’ first documented by Sloan [1996. Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review 71, 289–315]. We show that once controlling for total accruals, the relation between external financing activities and future stock returns is attenuated and not statistically significant. These findings are consistent with Richardson and Sloan [2003. External financing, capital investment and future stock returns. Working Paper, University of Pennsylvania and University of Michigan].

Investing in healthy human capital.

Although the value of human capital is not captured on company balance sheets, it may account for about half of the gap between a company's market value and book value. Yet, many companies do not focus comparable scrutiny on human capital management as compared with other large assets, nor do they systematically measure its output (ie, productivity). Methods are emerging to enable employers to assess productivity losses, including absenteeism and presenteeism, and to understand the associated costs (ie, direct medical costs, total productivity loss). This will permit employers to assess the value of programs to enhance health and productivity. We contend that the effective workforce is probably decreased by 5% to 10% because of health problems. We believe that employers who increase their investments in healthy human capital now will emerge tomorrow as the companies leading the gains in US productivity.

Securitization Post-Enron

This article has two objectives: To explain the threats to securitization in the post-Enron economic and regulatory climate, and to explore, more normatively, whether the threats are justified. Because securitization uses special-purpose vehicles and facilitates off-balance sheet financing, it has been tainted by Enron's abuses, which relied heavily on special-purpose entities and off-balance sheet financing. There are, however, very fundamental differences between Enron's deals and securitization transactions. Securitization is normally used by companies to obtain lower-cost financing through removal of intermediaries between the company and the ultimate source of funds, the capital markets. This is markedly different from Enron's use of special-purpose vehicles for mere balance-sheet manipulation. Even where securitization is used to keep debt off a company's balance sheet, it unambiguously transfers risk from the company to third parties. Perhaps the most fundamental difference, however, turns on conflicts of interest. The complexities of the Enron deals, and perhaps of certain securitization transactions, make it difficult for corporate directors and shareholders under existing corporate-law procedures to knowledgeably approve the deals. In the face of complexity, they also must rely on the business judgment of the managers that structure the deals - a reliance that may be misplaced where, as in Enron, those managers have significant conflicts of interest. In contrast, management in securitization transactions have been free of material conflicts. The absence of material conflicts may well explain why actual securitization transactions have not raised any of the excesses found in Enron or other corporate scandals.The absence of excesses does not, however, mean that securitization is desirable. I therefore next examine whether securitization is efficient and fair, and conclude it is both. Securitization enables companies to obtain low-cost capital market financing, and provides liquidity for otherwise viable companies that need but cannot otherwise obtain financing. And it does this without prejudicing any third-parties, such as unsecured creditors. Moreover, the availability of securitization as a financing option actually facilitates bankruptcy rehabilitation policy.

Assessing the potential impact of lease accounting reform: a review of the empirical evidence*

Accounting standard-setters have proposed that the right to use assets (including land and buildings) acquired under operating lease contracts should be recognized on the balance sheet of lessee companies. In recent years, several empirical research studies have investigated the potential impact of the proposed changes in accounting for leases. The current paper reviews this work and presents some new evidence, for a property audience. It summarizes evidence that operating leases represent a major source of finance for many companies generally, and more specifically for companies in the retail sector. Recognition of operating leases on the lessee's balance sheet would have a significant impact on performance measures, especially gearing. If markets are informationally "efficient' such changes should have little impact. However, research evidence on efficiency with respect to lease accounting information is mixed. What's more, company managers do not believe that the market is efficient so are likely to behave as if the markets are "inefficient'. Possible reactions include reduced use of leasing, shorter lease contract terms, more break clauses, or increased use of contingent rental agreements. It seems likely that lessors will be under pressure to bear greater risks.

Restructuring through FDI in Romanian manufacturing

Despite the low amount of FDI in Romania as compared with more advanced transition countries, foreign penetration in the manufacturing industry is high. With a database relying on company balance sheets, the performance of foreign affiliates in manufacturing industries is analyzed. An important finding is that significant foreign presence in an industry coincides with increasing export performance. Foreign affiliates have so far had a conserving rather than restructuring effect on Romania’s foreign trade structure. FDI reinforced Romania’s traditional specialization in clothing, footwear and metals. They are also the driving force behind the emergence of exports in the electrical machinery and electronics sector. We can foresee a similar development in the car industry in the future. More success in new export industries was hindered by unfavorable conditions for green-field investment.

Financial regulation of public limited companies in the UK: A way forward post‐Enron

On 16th April, 2002, the authors gave oral evidence to the House of Commons Treasury Committee Inquiry into Financial Regulation of Public Limited Companies which was set up following the collapse of Enron. This paper is adapted from the written submission to the Committee on which their oral evidence was based. The authors argue that the Enron collapse provides an opportunity for regulators to stand back and consider fundamental issues associated with the regulatory framework for financial reporting, auditing and corporate governance in the UK. They challenge the financial reporting framework as being muddled between the concepts of stewardship and decision usefulness. Company balance sheets are an amalgam of figures based on historical cost and accounting estimates. The increasing use of financial instruments and the inclusion of intangibles makes valuations complex and judgmental and therefore much more dfficult to audit. Incentives in the capital markets which drive the behaviour of all participants should be considered to ensure that the current system does not encourage dysfunctional outcomes and excessive rewards. The personal incentives for partners in audit firms are of particular interest as a potential key influence on auditor independence. It is suggested that non‐executive directors should be mandated to protect the interests of investors. The authors counsel against kneejerk reactions to the Enron collapse as a number of changes such as the transfer of regulation of securities listing to the Financial Services Authority (FSA) and the establishment of the Accountancy Foundation need time to settle down. They believe that auditor rotation will introduce costs without clearly identifiable benefits and are opposed to wholesale banning of auditors providing non‐audit services to their clients.

Measuring the value of Lincoln Re’s R&D

This case study of the valuation of intangible assets compares an internally generated estimate of discounted cash flow (DCF) with an estimate of knowledge capital (KC). It describes Lincoln Re’s mortality research and development (R&D) capability, the knowledge management (KM) strategies used to leverage it and the management decisions that were made to create economic value. This paper reviews a theory of KM and a valuation approach with DCF measures. The decisions to invest in R&D and the Lincoln Mortality System, an expert system for product development, produced a 23.9 percent growth in DCF and created substantial value for Lincoln Re. Using Baruch Lev’s approach to KC, it is suggested that 0.45 percent is a good working figure for the return on asset for life insurance firms versus the previously published 10.5 percent due to the overwhelming percentage of financial assets on the balance sheet of financial companies and the fact that the return on financial assets is imbedded in product pricing. The correlation between DCF and KC measures is approximated by a DCF/comprehensive value ratio and the results show 70‐80 percent correlation at the enterprise, division and asset levels.

ACCOUNTING FOR INTANGIBLES: THE GREAT DIVIDE BETWEEN OBSCURITY IN INNOVATION ACTIVITIES AND THE BALANCE SHEET

This paper analyses descriptive data from a discretionary accounting setting and several generic properties of innovation activities to explain why intangible assets are grossly under-recognized in company balance sheets. Existing literature and publicly available data indicates the increasing significance of intangible investment in the growth and development of firms and the stock of knowledge. However, a systematic framework to reliably quantify the stock of intangible assets remains elusive. This paper contributes to the debate surrounding recognition of intangible assets by demonstrating how economic attributes of intangible assets arise from generic features of innovation activities, and identifying the nature of the mis-match between accounting principles and the economic attributes of intangible assets which serves to reduce the relevance of accounting information. It is argued that accounting has become inwardly focused on the internal consistency of accounting relative to an outdated set of principles. Before an accounting asset can be recognized financial reporting systems typically require a 'cost' verifiable from a past transaction which the firm can directly link to expected future revenues. This narrow accounting approach is inconsistent with the properties of intangible investments in the knowledge-based economy.

Transforming the Balanced Scorecard from Performance Measurement to Strategic Management: Part I

Several years ago we introduced the Balanced Scorecard (Kaplan and Norton 1992). We began with the premise that an exclusive reliance on financial measures in a management system is insufficient. Financial measures are lag indicators that report on the outcomes from past actions. Exclusive reliance on financial indicators could promote behavior that sacrifices long-term value creation for short-term performance (Porter 1992; AICPA 1994). The Balanced Scorecard approach retains measures of financial performance--the lagging outcome indicators--but supplements these with measures on the drivers, the lead indicators, of future financial performance. THE BALANCED SCORECARD EMERGES The limitations of managing solely with financial measures, however, have been known for decades. [1] What is different now? Why has the Balanced Scorecard concept been so widely adopted by manufacturing and service companies, nonprofit organizations, and government entities around the world since its introduction in 1992? First, previous systems that incorporated nonfinancial measurements used ad hoc collections of such measures, more like checklists of measures for managers to keep track of and improve than a comprehensive system of linked measurements. The Balanced Scorecard emphasizes the linkage of measurement to strategy (Kaplan and Norton 1993) and the cause-and-effect linkages that describe the hypotheses of the strategy (Kaplan and Norton 1996b). The tighter connection between the measurement system and strategy elevates the role for nonfinancial measures from an operational checklist to a comprehensive system for strategy implementation (Kaplan and Norton 1996a). Second, the Balanced Scorecard reflects the changing nature of technology and competitive advantage in the latter decades of the 20th century. In the industrial-age competition of the 19th and much of the 20th centuries, companies achieved competitive advantage from their investment in and management of tangible assets such as inventory, property, plant, and equipment (Chandler 1990). In an economy dominated by tangible assets, financial measurements were adequate to record investments on companies' balance sheets. Income statements could also capture the expenses associated with the use of these tangible assets to produce revenues and profits. But by the end of the 20th century, intangible assets became the major source for competitive advantage. In 1982, tangible book values represented 62 percent of industrial organizations' market values; ten years later, the ratio had plummeted to 38 percent (Blair 1995). By the end of the 20th century, the book value of tangible assets accounted for less than 20 percen t of companies' market values (Webber 2000, quoting research by Baruch Lev). Clearly, strategies for creating value shifted from managing tangible assets to knowledge-based strategies that create and deploy an organization's intangible assets. These include customer relationships, innovative products and services, high-quality and responsive operating processes, skills and knowledge of the workforce, the information technology that supports the work force and links the firm to its customers and suppliers, and the organizational climate that encourages innovation, problem-solving, and improvement. But companies were unable to adequately measure their intangible assets (Johnson and Kaplan 1987, 201-202). Anecdotal data from management publications indicated that many companies could not implement their new strategies in this environment (Kiechel 1982; Charan and Colvin 1999). They could not manage what they could not describe or measure. INTANGIBLE ASSETS: VALUATION VS. VALUE CREATION Some call for accountants to make an organization's intangible assets more visible to managers and investors by placing them on a company's balance sheet. But several factors prevent valid valuation of intangible assets on balance sheets. …

The rise and rise of the share premium account

Share premiums now constitute a substantial proportion of UK company equity but rarely featured on nineteenth century company balance sheets. This paper discusses when and why this changed and why the definition of the share premium account as company capital took nearly a century to reach the statute books. From 1855 to 1948 any surplus above par on issued shares could be treated at the directors' discretion, including appropriation for the payment of dividends. This freedom was removed in the Companies Act 1948 (s. 56), after the Cohen Committee recommended that share premiums should normally be treated as share capital and employed in a very limited range of transactions. The paper outlines the accounting and legal history of the share premium account and argues that the growth of share premiums was due to a tax avoidance loophole, open from 1889 to 1973, which permanently changed company practice on share issues after 1920. The effect of legal restrictions on the use of the share premium account is also addressed. One possible future consequence of the loss of economic significance of the nominal value of a share is the total abolition of both this and the share premium account by adoption of no par value (npv) shares, a change which has recently been adopted in Australia and is again under consideration in the UK.

Return to Equity in Project Finance for Infrastructure

The Vietnamese version is available at: http://ssrn.com/abstract=493985In project finance, the viability of the project is based on the expected cash flows generated by the project rather than on the strength of the company's balance sheet. Thus, it is relevant to construct the annual cash flow from the equity point of view and estimate the annual returns to the equity holder but the usual simplifications for calculating the cost of capital do not permit the explicit estimation of the annual returns to the equity holder. In this paper, I relax many of the assumptions in the typical analysis, and provide a simple and practical way to estimate directly the annual returns to the equity holder. This approach requires the calculation of the annual present values of the future cash flows from the point of view of the equity holder. Two equivalent ways for calculating the annual equity values are shown. Most importantly, the construction of the cash flow statement from the equity point of view permits the analysis of the likely impacts of contracts on the risk profile of the project for the equity holder.

ON THE EQUIVALENCE OF NET PRESENT VALUE AND MARKET VALUE ADDED AS MEASURES OF A PROJECT'S ECONOMIC WORTH

ABSTRACT The metric Economic Value Added, or EVA, has recently become quite popular for analyzing company balance sheets, determining executive compensation packages and even project selection. The analysis entails comparing net after-tax operating profit against the allocated cost of capital for a given period. This paper shows, in general, that Market Value Added (MVA), which is the present value of a series of EVA values, is economically equivalent to the traditional NPV measure of worth for evaluating an after-tax cash flow profile of a project if the cost of capital is used for discounting. Additionally, insight is provided into the rationale behind EVA analysis through an interpretation of its capital and income allocation procedure for investment projects.

Exit strategies and sunk costs: the implications for multiple retailers

Reviews ways in which sunk costs, particularly those embedded in property ownership, can affect programmes of selective closure of retail outlets. Three examples from UK retailing in the 1990s – Littlewoods, the British Shoe Corporation and Do it All – are used to demonstrate that sunk costs have been significant in delaying the execution of rationalisation programmes, and have led to substantial “write‐offs” of property assets in company balance sheets. Certain conventions and inflexibilities in British property law and management are identified as key influences. There is shown to be a need for further research into corporate closure programmes and their relationships with property and locational issues. Some tentative conclusions for corporate retail strategies are discussed.