External Capital Research Articles

Intellectual Capital Disclosure in Chinese and Indian Information Technology Companies: A Comparative Analysis

Purpose: The purpose of this paper is to examine the extent and quality of voluntary intellectual capital disclosures by information technology companies of China and India.Research Design/Methodology: The research method adopted for this study is content analysis. The research is limited to the intellectual capital information disclosed in companies’ annual report. The sample for this research is based on 20 information technology (IT) companies listed by market captalisation listed on Shenzhen or Shanghai stock exchange market, and the largest 20 companies listed on Indian stock market.Findings: Indian IT companies tends to perform better than Chinese IT companies in extent and quality of disclosures. The extent of disclosure of both countries is at a relatively high level. The most frequently reported disclosure category in India is external capital, while the least one is human capital. In China, external capital is the most frequently disclosed category, while the internal capital is the least one.Limitations/Implications: The sample size of the study is relatively small. Future research can expand on the sample size to get an overview of the intellectual capital disclosure, and conduct a longitudinal study to capture the trend of reporting practices.Originality: Previous studies of intellectual capital (IC) disclosure have covered little on the relationship between market capitalization and quality of disclosure and cross-country disclosure on IC. This research tends to extend the literature on intellectual capital disclosure.

Intellectual capital disclosure by Chinese and Indian information technology companies

Purpose – The purpose of this paper is to examine the extent and quality of voluntary intellectual disclosures by information technology (IT) companies of China and India. Design/methodology/approach – The research method adopted for this study is content analysis. The research is limited to the intellectual capital information disclosed in companies’ annual report. The sample for this research is based on 20 IT companies listed by market capitalization listed on Shenzhen or Shanghai stock exchange market, and the largest 20 companies listed on Indian stock market. Findings – Indian IT companies tends to perform better than Chinese IT companies in extent and quality of disclosures. The extent of disclosure of both countries is at a relatively high level. The most frequently reported disclosure category in India is external capital, while the least one is human capital. In China, external capital is the most frequently disclosed category, while the internal capital is the least one. Research limitations/implications – The sample size of the study is relatively small. Future research can expand on the sample size to get an overview of the intellectual capital disclosure, and conduct a longitudinal study to capture the trend of reporting practices. Practical implications – The findings of this study have implications for policy makers and standard setters for rethinking of inclusion of intellectual capital disclosure in annual reports as compulsory items. This will not only add tot he quality of information but various stakeholders will be able to make an assessment of the values of a firm. Originality/value – Previous studies of intellectual capital (IC) disclosure have covered little on the relationship between market capitalization and quality of disclosure and cross-country disclosure on IC. This research tends to extend the literature on IC disclosure.

Formation of conceptual approaches to management of intellectual capital of knowledge considering hierarchical levels at the enterprise

It is determined that intellectual activities of the enterprise as to the creation of intellectual capital should be organised at four hierarchical levels. A specific kind of intellectual capital is formed at each level: at the level of enterprise external environment and economy as a whole, its business environment - external intellectual capital is formed; at the level of the enterprise - organisational intellectual capital; at the level of working or project team (department) - group human capital; at the level of the individual (an employee as a bearer of knowledge of the company and workplace) - individual human capital. By organising intellectual activity at the enterprise, it is offered to form such conceptual approaches that will help to reflect the character of embodying entities of different levels into the creation and usage of intellectual capital. The following approaches will ensure the independence and sustainability of the enterprise. They are traditional, cooperation, and integration approaches. It ensures investing in the formation of human intellectual capital that can create intellectual innovative products, i.e., new knowledge with further transformation into organisational and market intellectual capital.

RISK CONSEQUENCES OF TAX-MOTIVATED CHOICE OF ORGANIZATIONAL FORM IN THE BANKING INDUSTRY

We examine the risk consequences of the S-corporation election, a tax-motivated organizational form, on banks' risk-taking behaviors and extreme adverse outcomes. S-corporations' single level of taxation increases access to after-tax internal capital and likely enhances S-corporation monitoring efforts. However, S-corporations face strict organizational restrictions on the number and type of allowable shareholders. Given banks' rigid capital criteria and active regulatory environment, this differential access to external capital is likely to influence S-corporations' risk-taking behavior. Our evidence suggests that the organizational restrictions necessary to qualify for S-corporation status reduce risk-taking behaviors and limits some extreme adverse outcomes.

Better Together? Signaling Interactions in New Venture Pursuit of Initial External Capital

After new ventures have exhausted the limited financial resources of founders, family, and friends, they often pursue initial external capital. To secure investment, entrepreneurs can signal about ...

On a Connection between Froot-Stein and the De Finetti Optimal Dividends Models

Costly external capital is one of the frictions that violates the premises of the Modigliani and Miller irrelevance theorems. Froot et. al. developed a three-stage model to explain how costly external capital, along with other frictions, provides an opportunity for risk management to create value. This paper extends their model to analyze risk management (in particular, reinsurance) in the context of a going concern. It relates the extended Froot model to a fifty-year-old stochastic dividend optimization problem, introduced by Bruno de Finetti, which has received growing interest in the recent decade.

External Finance, Leverage and Human Capital Asset Liquidation. Evidence from Eastern and Central European Firms.

A number of empirical studies have identified channels through which banking and financial crises transmit to the real economy. In particular, the financial accelerator model requires firms' financial condition to impact labour. This paper contributes to investigating this link by focusing on a set of countries that underwent dramatic changes in the few decades prior to the Global Financial Crisis, namely Central and Eastern European countries. The deregulation of labour markets that accompanied the transition of former socialist economies has meant the rapid spread of flexible forms of employment (particularly temporary employment), where forms of employment protection are sizably reduced. This paper investigates the response of different forms of employment to firms' debt during the years preceding and following the onset of the GFC. Unlike other studies that have investigated the impact of firms' financial constraints and leverage on employment, this study finds that the transmission to the labour markets originated from previous investments in fixed assets that were only partially covered by internal finances. Firms' debt impacted more on the permanent workforce than on the temporary one, a result that questions the generality of the empirical evidence previously reported on this issue. Finally, firms experiencing sharp changes in their ability to meet fixed assets investments with their internal funds laid off high human capital employees more than unskilled segments of their workforce. This result confirms the one that Milanez (2012) recently found in a sample of Californian firms during the GFC. Both these studies, although different in the way they measure workers' skill, contradict theoretical labor economics predictions that firms lay off workers in inverse order of the degree of human capital.

External Capital Access and New Product Launch in Start-Up Firms with Uncertain Intellectual Property Rights

Classical patent literature assumes that patents grant well-defined legal rights to exclude others from practicing an invention. In this scenario, start-up companies benefit from the exclusive right to commercialize patent-protected inventions and the certification effect of patents which signals the ventures’ “quality” to investors. If the decision about patent applications is pending at the patent office patent rights become probabilistic and both effects may not realize. We show that start-up companies are reluctant to launch new products if patents are pending. Further, pending patents attract risk-seeking investors (venture capitalists), while more cautious investors (banks) do not react on pending patents.

Chinese and English language versions: intellectual capital disclosure

Purpose – The paper of this paper is to assess the extent and quality of IC disclosure in the Chinese and English language versions of the annual reports of 50 Chinese companies which are dual listed in both Chinese Mainland and Hong Kong stock markets. Design/methodology/approach – An IC disclosure index is constructed. Content analysis is used to code the 100 annual reports in accordance to a five-point scale. Findings – The Chinese version annual reports disclose more internal capital than the English versions, yet the English versions showed greater external capital. There was found to be a strong relationship between type of industries, the size of companies and the level of IC disclosure. Research limitations/implications – The paper only examines one year's annual reports of the top 50 Chinese companies by market capitalisation. Practical implications – It is hoped that by highlighting the IC disclosure of companies in China this will raise the level of debate around this issue and will lead to gre...

Private Equity and Asset Characteristics: The Case of Agricultural Production

Unlike most other mature industries; the agricultural production sector is dominated by family firms, partnerships, and cooperatives; with few corporations and limited access to capital derived from a source other than retained earnings and existing owners. However, use of external equity capital in agriculture has increased dramatically since 1990. This funding source allows farms to exploit entrepreneurial opportunities not easily financed by debt. Following Williamson (1988), we view debt and equity as alternative governance structures, and argue that transaction cost economics offers insights on firms’ financial structure beyond those provided by agency theory. We relate capital structure to asset specificity, a particularly important attribute in agricultural production. We construct an international data set of agricultural companies receiving external private equity, and show that the attributes of the assets involved in production are important determinants of financial structure.

The Investigation and Countermeasures Research on Farmland Abandonment

Farmland is an important guarantee for national food security. With the acceleration of industrialization and urbanization in China, continuous decrease in arable land and farmland abandonment have become a common phenomenon, which is directly threatening the national food security. This study took the typical rural farmlands around Chengdu as research subjects. Through on-site investigation on farmland abandonment phenomenon in the three representative regions, including Longquanyi District, Chongzhou City and Qionglai City, and questionnaire surveys on rural population information, outflow of rural labors, economic status of rural family, farmland use status and effects of policies, the result shows that the three regions have different levels of farmland abandonment, which is primarily caused by land transfer and inflow of external capitals. This study proposed the corresponding countermeasures and suggestions on the basis of cause analysis.

Commercial and investment banking and the international credit and capital markets: a guide to the global finance industry and its governance

Preface PART 1: THE FUNDAMENTALS OF FINANCE, MARKETS AND THE FINANCIAL FIRMS The Price Mechanism and the Three Pillars of Finance Appendix - Valuation Models, Issues in Bank Asset Valuation, Discounted Cash Flow Valuation of Bonds and Equities Balance Sheets: The Key to Understanding Financial Intermediation Financial Intermediation: Industry Sectors, Products and Markets Financial Intermediation: Commercial and Investment Bank Structure PART 2: PRIMARY MARKETS: FUNDING LIQUIDITY AND EXTERNAL CAPITAL ALLOCATION THROUGH CREDIT AND CAPITAL MARKETS Liquidity: What is it? Financing the Four Sectors: Companies, Households, Governments and Overseas through Credit and Capital Markets Banking: Credit Intermediation through Depository Institutions Bank Liquidity Management Converting Loans to Securities: Securitisation as a Financing Tool Shadow Banking: Credit Intermediation through Non-depository IPOs and Corporate Bond Origination PART 3: SECONDARY MARKETS: MARKET LIQUIDITY AND MARKET FAILURE Market Liquidity: Order-driven Auction Markets and Quote-driven Dealer Markets The New Secondary Market Structure: Competition, Dark Pools, Algorithmic and High Frequency Trading Clearing and Settlement of Securities Transactions Market Failure: Sub-optimal Allocation of Resources by Credit and Capital Markets, Banking and Sovereign Debt Crises Assessing Risk and Return for Investors in Bank and Sovereign Debt Case Study: Lehman - What might have been Case Study: Greece in Default in 2011 Case Study: Italy, Illiquid or Insolvent in 2011 PART 4: ASSESSING AND MANAGING RISK IN ASSET PORTFOLIOS Investment Management and Portfolio Structuring Investment Management Practice: Funds - Pension, Insurance, Sovereign Wealth, Long-Only, Hedge, Mutual, Cash and Synthetic ETF's and Delta One Trading Desks PART 5: INTERNAL CAPITAL ALLOCATION: THE ROLE OF DIRECTORS, INVESTORS AND THE MARKET FOR CORPORATE CONTROL The Internal Capital Market & Investor Governance of Capital Allocation The Market for Corporate Control: Mergers and Acquisitions Private Equity PART 6: INTERNAL RISK MANAGEMENT AND EXTERNAL REGULATION OF FINANCIAL INTERMEDIARIES AND MARKETS Risk Management in Credit Intermediaries and Investment Banks Regulation of Banks and Investment Banks: Basel I, II, and III Regulation of Securities Markets PART 7: THE ROLE OF GOVERNANCE AND STRATEGY IN RESOURCE ALLOCATION, FIRM AND INDUSTRY STRUCTURE: CASE STUDIES IN FINANCIAL SERVICES Strategy, Governance and Firm and Industry Structure Case Studies in Financial Services - Success and Failures The Future Structure of the Industry: Implications of Re-regulation The Fatal Flaw in Capital Allocation - The Shift from a Trust Model to a Transactional Model The Global Economic and Financial Outlook: 2020 Vision

Corporate Governance and its Determinants in Emerging Countries: A Case Study of Bangladesh

This paper begins with a summary of the literature on ways of measuring corporate governance ‘quality’. It then considers three related research questions, all in the context of an emerging economy, Bangladesh, where corporate governance has been a major concern. The first question is which firms are the leaders, in the sense that they are the first to update their governance practices? The second question is, what factors best explain changes in firms’ governance practices over time? The third question is what best explains differences in corporate governance practices across firms at a given point in time? Using a self-constructed composite index of governance quality comprising 148 elements, it was found that a subsidiary of a foreign company scored the highest in 11 of the 13 years, suggesting that the need for external equity capital may not be the primary motive for an improvement in firm-level governance in Bangladesh. Four firm-level characteristics, namely firm size, growth opportunities (measured by the book-to-market ratio), volatility and leverage, are significantly associated with changes in governance quality from one year to the next, while stock volatility is not associated with cross-sectional differences in CG quality across firms at a given point of time.

The Effects of Portfolio Investments Flows in Firmss Capital Structure: A Study of Brazilian Firms from Retail and Textile Sectors.

Prior research suggested that the flow of portfolio investments reduces the equity cost of firms, by a reduction in the expected return of stocks that follows from the sharing of risk associated to the financial asset between domestic and international investors. The objective of the study was to verify whether the flow of portfolio investments causes firms to adjust their levels of leverage, reflecting a marginal reduction of own capital cost relative to external capitals. The method employed was panel data regressions, using the first-differenced estimator. Results suggest that firms in the sample in fact adjusted their capital structure following portfolio investment flows, as the marginal effect of portfolio flows in the debt-to-assets ratio is negative. Larger firms and firms with higher growth opportunities presented a higher marginal reduction on leverage.

Acquisition of external capital at start-up stage: differences between Swedish female- and male-owned firms

This research explores differences in external capital acquisition between female- and male-owned firms at start-up stage in Sweden. The study sample is taken from a unique and large database including 836 female- and 1928 male-owned firms in 2008, giving a total of 47,022 observations. ANOVA, multinomial logistic regression, and other robust statistical tests are employed to analyse the data. The results indicate that two variables, i.e., loans from family members and government grants, are significant in distinguishing between female- and male-owned firms in terms of external start-up capital. The findings also indicate that owners' previous experience and having an additional job outside one's own business influence the use of external capital at start-up stage. Knowledge of the difference between female- and maleowned firms' use external capital at start-up stage is limited and ambiguous. The present results contribute to research into small firm financing by adding insight into the relationships between capital acquisition, gender, and other variables. Copyright © 2012 Inderscience Enterprises Ltd.

An exploratory study on the usefulness of intellectual capital information

Intellectual capital (IC) is considered as the intangible resources that help in value creation of the company. IC consists of three categories: internal capital (INC), external capital (EXC) and human capital (HUC). This paper aims to examine the academics’ perception of the usefulness of IC information disclosed in the annual reports of Malaysian listed companies. The paper found that the respondents perceived IC information (i.e., overall) to be useful for the purpose of decision making. The findings also showed that the mean of the perception of the usefulness of EXC information is higher compared to the means of INC and HUC. In addition, the findings of the t-tests reveal that the perceptions of IC (i.e., overall), INC, EXC and HUC information are statistically significant. Moreover, the paired samples t-test confirmed the significant differences in the perception of usefulness between INC with EXC and EXC with HUC.

Family Business Groups Around the World: Costs and Benefits of Pyramids

Using a comprehensive dataset of 28,039 firms in 45 countries, this study investigates the motivations for family-controlled business groups, focusing on the question of how such groups are able to attract minority shareholders and allay their concerns about being expropriated. We argue that minority shareholders co-invest with group controlling owners because group structures play critical roles in financing projects that might not be otherwise funded by external investments, especially in underdeveloped capital markets. Our analysis offers support for this argument and provides new insight into how the balance of costs and benefits of group affiliation varies both within the pyramidal structure of a group and across investment environments. At the country level, we find that restricted access to external capital is associated with a greater prevalence of family business groups. Within individual groups, we find evidence consistent with funding advantages that pyramid structures offer: among group members, firms at the bottom of a pyramid receive the greatest internal capital support. In particular, internal equity funding, investment intensity, and firm performance all increase down a pyramidal chain. Comparing group affiliates and independent firms, we find that the former is associated with a valuation discount, which is consistent with evidence from prior studies. However, controlling for endogeneity in group affiliation shows that certain firm types benefit from business group membership. Overall, our results highlight that in addition to the well-documented control motivations behind pyramidal groups, these structures also provide important funding and certification support to members firms.

As empresas transnacionais e os investimentos estrangeiros diretos: uma análise comparativa entre os países selecionados a partir dos anos 1990

This study aims to investigate the importance of the transnational companies and the foreign direct investments in the economy of some selected countries since 90’s. For this, it was examined the internationalization of the transnational companies, the composition of the world wide external capitals flows, determinants of the foreign direct investments attraction and the evolution of the foreign direct investment flows . The developed countries’ not-financial transnationals increased more than 176% from 1990 to 2004 in its total assets. The biggest worldwide corporations are located in the developed countries. General Motors, Exxon, Shell and Ford Motors have held the greatest amount of assets abroad. It was US$ 1.38 trillion, whereas the biggest transnational corporations in the developing countries come from Asia. The Chinese China National Petroleum Corp and the Hutchison Whampoa from Hong Kong, a gigantic corporation of telecommunications, retail and hotels, in total assets, the two enterprises held US$194.55 billion in 2004. United States, among industrialized economies, and China, among the developing countries, were the countries with the greatest foreign direct investments. They received 14.4% and 5.7% of the global foreign direct investments, respectively. Key words: foreign direct investments, international corporation, industrial and non-industrialcountries.

As empresas transnacionais e os investimentos estrangeiros diretos: uma análise comparativa entre os países selecionados a partir dos anos 1990

This study aims to investigate the importance of the transnational companies and the foreign direct investments in the economy of some selected countries since 90’s. For this, it was examined the internationalization of the transnational companies, the composition of the world wide external capitals flows, determinants of the foreign direct investments attraction and the evolution of the foreign direct investment flows . The developed countries’ not-financial transnationals increased more than 176% from 1990 to 2004 in its total assets. The biggest worldwide corporations are located in the developed countries. General Motors, Exxon, Shell and Ford Motors have held the greatest amount of assets abroad. It was US$ 1.38 trillion, whereas the biggest transnational corporations in the developing countries come from Asia. The Chinese China National Petroleum Corp and the Hutchison Whampoa from Hong Kong, a gigantic corporation of telecommunications, retail and hotels, in total assets, the two enterprises held US$194.55 billion in 2004. United States, among industrialized economies, and China, among the developing countries, were the countries with the greatest foreign direct investments. They received 14.4% and 5.7% of the global foreign direct investments, respectively.Key words: foreign direct investments, international corporation, industrial and non-industrialcountries.

A comparison of the effects of traditional production factors and sources of innovation on KIBS' performance: an empirical study of Taiwanese IC design firms

Knowledge-Intensive Business Services (KIBS) are important carriers, sources and facilitators of innovation. This study aims to analyse the factors that contribute to firms' performance in a KIBS subsector in Taiwanese Integrated Circuit (IC) design industry by proposing an integrative evolutionary production function, which includes traditional production factors such as physical capital and labour, as well as sources of innovation like internal Research and Development (R&D) and external technology acquisition. Based upon data from 68 Taiwanese IC design firms during 1993?2005, this study was primarily concerned with modelling the factors that influence firm performance. Empirical results show that internal R&D is the most important factor that contributes to firm performance, followed by labour, external technology acquisition and physical capital. But the last two latter factors do not significantly influence firm performance. This study concludes that internal R&D and labour have the greatest explanatory power to enhance firm performance, especially in KIBS. If IC design firms want to raise their performance level, they have to invest more on internal R&D and labour than on physical capital and external technology acquisition.