External Equity Research Articles

Financing and Farm-Gate Pricing Strategies for Agricultural Cooperatives With Cash-Constrained Farmers

Equity investment in agricultural cooperatives (co-ops) is typically limited to farmer-members; yet farmers are usually cash-constrained. In addition to the common stock that is held by farmer-members, many co-ops are changing their financial structure by raising equity from external investors. This helps co-ops to collect capital, but also brings to the fore the conflicting benefits of farmers and external investors. In this paper, we develop a two-stage game-theoretic model to examine a start-up co-op’s farm-gate pricing and financing strategies, considering two types of external fund: preferred stock that bears a fixed return rate and outside stock that shares the net profit (in proportion to equity) with common stock. We characterize the co-op’s strategies in different scenarios and generate the following insights. First, while both types of external equity outperform the case with common stock only, the preferred stock generally outperforms outside stock due to its lower financial cost, higher tolerance for fund size limits, and flexibility in setting farm-gate prices. However, outside stock can outperform preferred stock if it allows a higher fund size limit. Second, the co-op’s financial strategy exhibits a similar structure in equilibrium regardless of whether it is preferred stock or outside stock, despite their distinct financial terms. Finally, farm-gate pricing has a unique role in co-ops affecting the returns to farmers and external investors, which also highlights the conflicting roles of farmers as both patrons and investors when external equity is used.

Financial Constraints and Corporate Finance: Insights from Nepalese Firms

The purpose of this study is to investigate how managers navigate the capital market amidst financial constraints. Expanding upon the findings of Graham and Harvey (2001), Campello et al. (2010), and Bancel and Mittoo (2014), we confine our attention to Nepal as a developing nation. Our approach encompasses criteria and delves into the challenges associated with securing financing, utilizing descriptive analysis. The study entailed surveying 198 financial executives using a structured questionnaire. Among the respondents, nearly half of them indicated that they experienced financial issues at a specific point in time. The survey focused on the financing challenges that managers face when considering potential projects for their undertakings. The findings revealed that managers prioritize the use of internal equity, followed by external equity, and lastly, debt. Interestingly, this order contradicts the hierarchical theory. Financially constrained firms identified several major obstacles when raising funds from banks, including high interest rates, lengthy banking processes, and bank fees. Additionally, it has been uncovered that maintaining financial flexibility and considering firm size are crucial factors for the company in addressing their financial shortfall.

Productive Tensions and Their Results

ABSTRACT This article explores the tension – in both positive and negative senses – of an aquarium’s internal and external equity work. The article parses out this tension, especially reflecting on where the equity work lives, where it gets messy, and who is doing the work. It centers on the tensions around positionality for a woman of color initially without, then later with, authority in a predominantly white organization by offering accounts of those tensions through her own lived experiences. Through her stories, the author considers questions such as: Who can rock the institutional boat without worrying about their job? What are the capacities really needed to balance internal and external equity efforts? Where are the lines between being a representative of a group and being tokenized? What is the emotional burden of having to justify your lived experience? The author discusses the direct results of these natural tensions and the impacts they have on historically excluded communities engaging with and working for cultural institutions.

Impact of Capital Structure on Financial Performance of Listed Manufacturing Companies in Tanzania – Evidence From Listed Manufacturing Companies in Tanzania

This paper evaluates the impact of capital structure on the financial performance of listed manufacturing companies in Tanzania. The study was guided with three predicting variables namely internal equity, leverage and external equity; tested towards financial performance measured using return on assets (ROA). The study employed explanatory design that knowledge generation was facilitated by means of causal relationship testing. Secondary data were used in facilitating knowledge generation process covered the period of eight (8) years between 2016-2023. The collected information were computed in Excel sheet and imported in E-view software to generate statistical tests to present the results. Regression analysis through ordinal least square (OLS) model was used to describe the relationship between study variables. results indicate that all three tested predictors to the dependent variable namely internal equity, external equity and leverage are positive with significant results towards financial performance among listed manufacturing companies with p<0.05. This implies that financial performance of listed manufacturing companies in Tanzania through return on assets (ROA) is positively influenced with internal equity, leverage and external equity respectively.

Influence of Training and Honorarium on the Work Effectiveness of Employees at the Regional Secretariat Procurement of Goods and Services Division, North Konawe Regency Government

This study aims to analyze the influence of training and honorarium on the work effectiveness of employees at the Regional Secretariat Procurement of Goods and Services Division, North Konawe Regency Government. There are still deficiencies in the external equity of honorarium, creating uncertainty and disappointment among employees. This study seeks to answer whether training and honorarium affect employee work effectiveness. The research methodology used is descriptive methods and multiple linear regression analysis with a sample size of 31 employees. The main results of the study indicate that training and honorarium have a positive and significant effect on employee work effectiveness. Employees perceive the provided training and honorarium as highly satisfactory, which implicates an improvement in work effectiveness. Good training enhances employees' knowledge and skills, while fair honorarium motivates employees to work more effectively. The implications of this study suggest that improvements in the training and honorarium system can enhance employee work effectiveness in the institution.

Do exploration and exploitation in university research drive early-stage equity financing of university spin-offs?

An emerging theme in the entrepreneurial university (EU) literature is how universities should evolve to best reconcile their different missions, particularly research and commercialization, which often require different sets of resources. This tension is evident in the development of university spin-offs (USOs). In particular, the EU literature has generally overlooked how characteristics of university research affect USO’s early-stage access to external equity. In this study, we embrace the characterization of university research offered by literature in terms of patterns, specifically, exploration and exploitation. Through the lens of the imprinting perspective, we study the effect of exploration and exploitation in university research on the early-stage equity financing of USOs on a unique dataset that covers a sample of 739 USOs from 39 Italian public universities founded from 2011 to 2019. Our results indicate that exploration (exploitation) in research has an overall positive (negative) impact on the likelihood of USOs obtaining early-stage external equity financing. Additionally, this exploratory study offers several conceptual and practical contributions to the EU literature.

On stakeholder theory and corporate investment under financial frictions

AbstractThe view that corporations have a wider focus than just maximising shareholder value has received considerable attention from practitioners, managers, and academics alike. We investigate the Q theory of corporate investment with financial frictions when management maximises stakeholder value instead of shareholder value. Different objective functions are investigated. We characterise the optimal investment and financial policy of the firm. The results show that stakeholder firms invest more than shareholder firms, that is, over invest, and an increase of stakeholder shares increases investment, except when equity issuing firms face severe informational asymmetries or severe cost of external equity. We also discuss different approaches to model investment of stakeholder firms and their implications for empirical analysis.

Analysis and Feasible Solution for Legislative Gaps in Notification Procedures in External Equity Transfer

In 2005, the Company Law stipulated the transfer of equity for the first time. However, in the subsequent amendments, the notification procedure for external transfer has always been unclear. As a result, there have been disputes about the time and method of the shareholder notification of the transferor in practice. This paper analyzes the disputes in case judgments before and after the entry into force of 2017 judicial interpretation, as well as the characteristics of asset and person compatibility of Limited Liability Company, and tries to find a feasible solution to alleviate the impact of legislative gaps and strengthen notification obligations. Lastly, the paper gives suggestions for improvement in the companys articles of association and for legislation, which is possible to strike a balance between the trust relationships within companies and the efficiency of business transactions.

External financing, technological changes, and employees

Abstract Using exogenous shocks on the ability to issue seasoned equity offerings (SEOs), we show SEOs lead to a higher employee skill composition, that is, a lower (higher) proportion of low (high) skilled workers. The decrease in low-skilled workers exceeds the increase in high-skilled workers, resulting in reduced employment at the firm level. These effects are more significant when firms invest more in technology following SEOs and face greater financial constraints before SEOs, suggesting that SEOs relieve budget constraints on technology investments. These findings demonstrate that while external equity financing helps upgrade technology to improve productivity, it has a dark side for low-skilled workers.

Innovation, asymmetric information and the capital structure of new firms

ABSTRACT Start-ups are essential contributors to economic development, but they often face several barriers to growth, including access to finance. We study their capital structure in their early years of operation through the lens of Pecking Order Theory, exploring how the pursuit of innovation influences firms’ reliance on different types of finance. Panel analyses of 8273 German start-ups show that innovation activities are relevant predict start-ups’ revealed preferences for finance. Effects on the type and order of financing sources depend on the degree of information asymmetries specific to research and development activities, human capital endowments, and the market introduction of new products and processes. New firms focused on research and development activities and with better human capital are less likely to receive informationally complex finance such as debt and will rely relatively more on owner and equity finance. Mixed evidence is found, instead, on the role of new products or processes. Our results suggest that the traditional pecking order theory does not hold for new firms, implying that owner and external equity play a much more prominent role for such firms. Then, managers and entrepreneurs should consider specific sources of finance and financial instruments in light of their innovative activities.

Impacts on REIT Stock Capital Structures, Equity Costs, and Market Liquidities of Being Included in ETF Managed Portfolios

In recent years, especially as compared to mutual funds, exchange traded fund (ETF) markets have grown and advanced significantly compared to other financial asset classes because of relative advantages. We found that inclusion of real estate investment trusts (REITs) in ETF assets under management (AUM) positively impacts REIT capital structure (financial leverage), cost of equity capital, and stock market liquidity. As percentages of REIT outstanding shares included in ETF AUM increased, we found corresponding reductions in financial leverage (both book and market leverage), reduced costs of equity capital, and greater market liquidity. This should be of particular interest to REIT and ETF managers as well as REIT and ETF investors. Partially because regulatory statutes incentivize REITs to rely more heavily on external equity financing, REIT stocks included as ETF AUM showed greater reductions in leverage compared to non-REIT stocks also held as ETF AUM. Our results, including applying difference-in-differences models, were robust with respect to these findings, REIT type, and firm fixed effects.

Can Independently Elicited Adult- and Child-Perspective Health-State Utilities Explain Priority Setting?

ObjectivesTime trade-off (TTO) utilities for EQ-5D-Y-3L health states valued by adults taking a child’s perspective are generally higher than their valuations of the same state for themselves. Ceteris paribus, the use of these utilities in economic evaluation implies that children gain less from treatments returning them to full health for a specified amount of time than adults. In this study, we explore if this implication affects individuals’ views of priority-setting choices between treatments for adults and children. MethodsWe elicited TTO utilities for 4 health states in online interviews, in which respondents valued states for a 10-year-old child and another adult their age. Views on priority setting were studied with person trade-off (PTO) tasks involving the same health states. We tested the ability of the subjects’ TTO utilities to predict these societal choices in PTO. ResultsThere are no significant differences between adult and child health state valuations in our study, but we do observe a substantial preference for treating children over adults in the PTO task. ConclusionsOur findings suggest that perspective-dependent health-state utilities only explain a small part of views on priority setting between adults and children. External equity weights might be useful to better explain the higher priority given to children.

Downstream firm's equity financing for capacity expansion in a supply chain

AbstractIn this research, we investigate a supply chain consisting of a downstream firm who purchases a component from an upstream firm and then transforms it into a final product. The downstream firm has a production capacity constraint and considers to raise capital from an investor through equity financing. The raised capital not only enables the downstream firm to expand the capacity but also allows the investor to hold equity shares in the downstream firm. We derive the optimal pricing and production decisions of the two firms and discuss the optimal equity financing strategy of the downstream firm. We consider two distinct models: the external equity financing model, where the capital is raised from an outside institution, and the internal equity financing model, where the capital is raised from the upstream firm. We show that because the cooperative relationship between the two firms can be improved in the internal equity financing model, the production quantity in this model may be even higher than that in a benchmark model with no capacity constraint and no equity holding by the investor in the downstream firm. In addition, the original shareholder of the downstream firm gets more benefit from the internal equity financing activity than from the external equity financing activity. We also analyze the impacts of the key model parameters on the equity financing strategy and find that the dependence of the financing strategy on the initial asset of the downstream firm is quite different in the two models. Moreover, when the production cost of the downstream firm is changed, less capital raised for expanding capacity may create more value for the original shareholder of the downstream firm in each model. Finally, we show that the key finding remains unchanged when deterministic demand is changed to stochastic demand.

The role of digital companies in the transformation of the Russian economic model

Subject. The article deals with the transformation of the Russian economic model. Objectives. The purpose is to test the hypothesis about the impact of companies generating high added value (digital companies) on the economic model of the country. Methods. The study rests on general scientific principles and research methods, like abstraction, generalization of approaches of domestic and foreign authors to industrial policy, and the economic analysis. Results. I analyzed characteristic features of companies operating in industries with high and low generated added value, offered a five-stage methodology for assessing the key characteristics of companies. At the first stage, the production function of companies is investigated to determine the impact of the return on the resources involved and the presence of a multiplicative effect on the scale of the country's economy. At the second stage, the indicators of volatility, growth, marginality are analyzed to determine the impact of these characteristics on the dynamics of GDP. At the third stage, indicators of investment and innovation activity are calculated to assess their impact on the level of investment in the economy. The fourth stage is devoted to the analysis of the financial activities of companies, including their ability to attract external equity and debt capital, and to the evaluation of the distribution policy, which enables to conclude on company’s ability to attract resources for development. At the fifth stage, the capitalization rate and expected rate of profit growth of companies are evaluated to assess their investment attractiveness. Conclusions. The calculations performed on the basis of financial and non-financial statements of PAO MMC Norilsk Nickel and Yandex for 2022 lead to the conclusion that companies in industries generating high added value (digital companies) provide a multiplier effect, contribute to accelerating economic growth, increasing competitiveness, and improving the country's economic model. However, for the sustainable development of these companies, an industrial policy is needed to support and stimulate them.

Does Chinese-style margin trading promote the high-quality development of listed companies?

Using the margin trading reform of China's stock market as a quasinatural experiment, this paper explores whether margin trading promotes the high-quality development of listed companies. The results show that total factor productivity (TFP) significantly decreases after listed companies are included in the underlying stocks of margin trading. In addition, the negative impacts are stronger for listed companies with higher financial leverage, lower cash asset holdings, lower shareholdings of financial institution investors, and less attention from securities analysts. Further research shows that the negative impacts of margin trading on TFP are closely related to the deterioration of the information environment and the tightening of financing constraints. When listed companies are included in the underlying stocks of margin trading, they use a lower proportion of their net profit for internal financing (and a higher proportion of their net profit for cash dividends) and significantly reduce external equity financing. The results of this study show that the margin trading reform in China's stock market may inhibit the high-quality development of listed companies to a certain extent.

Financing Early Stage Cleantech Firms

In this article, we analyze the financing of firms in the Cleantech sector that has successfully raised equity crowdfunding on platforms in 16 European countries. We find that firms with lower total assets and higher cash balances raise greater amounts of crowdfunding. In the period precrowdfunding, illiquid firms raise less finance and firms with greater assets raise more debt. In the postcrowdfunding period, crowdfunded firms raise significantly greater amounts of external equity, suggesting signaling effects. Our study highlights the ameliorating liquidity effects of crowdfunding, which are especially important in early stage firms developing new technologies.

Does writing a business plan still matter for searching and obtaining external equity finance?

ABSTRACT This study analyses the importance of business plans for founders and professional equity investors in the process of acquiring venture capital. How do the founders’ efforts spent on writing a business plan relate to obtaining the equity funding asked for? Based on a sample of 301 nascent ventures, we first ran a two-step selection model. This quantitative analysis shows that, while a founder’s effort to write a business plan positively correlates with the likelihood of the founding team seeking external financing, business plans are no longer a determining factor for actually obtaining external equity funding. Through additional qualitative analysis, we shed light on this finding and point to other tools venture capitalists increasingly use to forecast venture performance, thereby substituting business plans as core documents of venture assessment. Our study thus contributes to a better understanding of new matching tools between entrepreneurs and investors, thereby adding new knowledge to entrepreneurship scholars and policy-makers alike.

Two heads better than one? Strategic alliance and firms excess cash holdings

Based on elaborated manually collected strategic alliance data on all Chinese listed companies from 2007 to 2020, we document that alliance membership is positively associated with future excess cash holdings. Compared with non-allied firms, alliance membership increases excess cash holdings by an average of RMB 128.86 million (or US$ 19.95 million). Cross-sectional tests show that this positive relationship is more pronounced among firms with more severe manager–shareholder agency problems, but weakened among those with better corporate governance and an improved institutional environment. We further find that foreign alliance partners trigger more excess cash holding, and that allied firms mainly increase their cash holdings by obtaining external equity and debt finance cash. Finally, we find that internal interests exploiting motivation entice managers to hold excess cash in the strategic alliances.

Organization capital and analyst coverage

We hypothesize that analyst coverage reduces firms’ cost of capital and thereby facilitates more investments in organization capital, one of the most important intangible investments. To test our hypothesis, we use the exogenous variation in analyst coverage due to the mergers and closures of brokerages and measures of organization capital based on SG&A expenditures and text-based information manually collected from firms’ 10-K filings. Our results show that firms’ organization capital investments significantly decline with reduced analyst coverage. The post-event decline in organization capital is concentrated in firms with higher costs of capital, greater financial constraints, and greater dependence on external equity. Our findings are in contrast to other studies that have shown how the adverse effect of analyst coverage enhances managerial myopia and reduces corporate R&D. • Analyst coverage facilitates more investments in organization capital (OC). • We use a quasi-natural experimental of brokerage house mergers and closures. • Organization capital declines after analyst coverage reduction. • Decline in OC is concentrated in firms with higher costs of capital. • Firm productivity and operating performance decrease in firms with decline in OC.

Moderating Effect Of Bank Size On Nexus Between External Equity Capital And Financial Performance Of Lower-Tier Commercial Banks In Kenya

The commercial banks in Kenya have been recording declining performance over the recent past, with the lower-tier banks being the hardest hit. As a result, several banks in the lower-tier, such as Chase Bank, Dubai Bank of Kenya, and Imperial Bank, have been put under receivership. The collapse of banks does not give a good reflection of the sustainability of the banking system. Thus, the signals of poor financial performance need to be addressed promptly as the collapse of the banking system could also have a ripple effect on other sectors. The Kenyan banking sector is categorized into tier I, II, and III. The categorization is dependent on the size of the bank. The decline in profitability of the banking sector has affected tier II and III most. Also to note is that Tier one is made up of six giant banks that control close to half (49.9 percent) of the market, which begs the question as to whether the size of the bank has any influence on the performance of the banks. Therefore, this study sought to determine whether external financing influences Tier II and III performance and whether the bank size moderates this influence. Descriptive and explanatory research designs were employed in the study. The study population was 37 commercial banks in Tier II and III of the Central Bank's Lower-tier classification. Secondary data were adapted in the study for the years 2016 to 2020. After data cleaning, 26 banks were retained (70%) for further analysis. Data collected was analyzed by use of both descriptive and inferential analysis. Descriptive statistics included means, standard deviations, skewness, and Kurtosis, while inferential analysis included Multilevel Mixed Model Analysis and Hierarchical Multiple Linear Regression. The model coefficients show that equity has a positive and statistically significant relationship with the performance of lower-tier banks in Kenya measured using net profit margin (β=.229, p-value=.036<0.05). Further, the study found that size moderates the relationship between external equity and performance as an introduction of size in the model change R2 by .035 (p-value = 0.001). The study thus concludes that external equity capital positively influences the performance of lower-tier banks in Kenya, while size moderates the same. The study recommends that a bank evaluate when to use external equity funding, although external equity funding may be costlier. As a recommendation, lower-tier banks are encouraged to use external equity as this will improve their performance. Lower-tier banks are also encouraged to increase their asset base as their size moderates the banks′ performance.