Field Of Corporate Finance Research Articles

Research on corporate finance: history, challenge and prospect in China

PurposeFor the past years, the population of firms in China has increased fast. However, the financial research has always fallen behind the financial practice. Also, the Western financial theory may not be completely consistent with China’s context. In addition, appearing internet technology with big data and its applications to business bring some challenges not only to financial practice but also to the financial literature. Thus, the purpose of this paper is to review historical development of research in corporate finance, discuss the current issues and propose 16 key research topics in China context.Design/methodology/approachThis paper surveys Western classical literature and some important literature by Chinese scholars in the field of corporate finance. On this basis, the authors point out the shortcomings of existing research and opportunities for future research.FindingsThe authors propose 16 key research topics in the near future considering the current reforms on economic development strategy, financial and taxation system and SOE’s property right under the institutional background in China.Originality/valueThis paper makes a contribution to corporate finance research by exploring frontier topics for future research according to the China context and the global trend. These topics represent the demand from enterprises in China and are challenges for the academic world. It is of practical significance and great theoretical value to implement these studies. It will help the management to solve their financial problems and provide a fundamental basis for constructing the financial management theory with Chinese characteristics.

The Effect of Dividend Policy on Stock Price: Evidence from the Indian Market

One of the most debated issue in the field of corporate finance is the relationship between dividend policy and market price of share. There is good amount of literature for and against this issue. The present study has been undertaken to evaluate the effect of dividend policy on market prices of shares of Nifty 50 companies listed on the National Stock Exchange (NSE) for 2008–2017. The data have been analysed by employing multiple panel data regression models namely pooled regression, fixed effect model and random effect model. The Hausman test has been used to suggest the most appropriate regression model. The result of the Hausman test indicates that random effect model is more relevant in describing the relationship among the given variables. The results of the random effect regression model support the relevant approaches of dividend policy. Thus, we conclude that there is significant effect of dividend policy on the stock price of firms.

The Impact of the Flexible Employment on the Individual and Organizational Performance: The Example of temporary work (L'Impact Des Emplois Flexibles Sur La Performance Individuelle Et Organisationnelle: L'Exemple De L'Intérim)

The fundamental aim of this paper is to assess the consequences - on individual and organizational achievements - of resorting to flexible employment. From the particular example of temp contracts, it is possible to show how resorting to flexible employment is rational and profitable for executives who have to submit to the pressure of short-term profitability, which is a characteristic of the systems of shareholding governance. Such recourse can be principally justified by arguments coming from the field of corporate finance and from the theory of transaction costs. However we will see that this seeming profitability has to be kept into perspective by taking into account quite a number of hidden costs resulting from the specificity of temporary work. These costs - which may have an impact on individual and organizational performance - illustrate the limits of a short-term approach which is typical of shareholding logic and which represents an argument in favour of a wider vision of the performance.

Jean Tirole: The political economy of corporate finance <i>(On the book by J. Tirole “The theory of corporate finance”)</i>

The present article undertakes a critical review of the new book of Jean Tirole, the winner of the 2014 Nobel Prize in Economics, “The theory of cor- porate finance”, which has recently been published in Russian. The book makes a real contribution to the profession by summarizing the whole field of corporate finance and bringing together a big body of research developed over the last thirty years. By simplifying modeling, using unified analytical apparatus, undertaking reinterpretation of many previously received results, and structuring the material in original way Tirole achieves a necessary unity and simplicity in exposition of extremely heterogeneous theoretical and empirical material. The book integrates the new institutional economic theory into classical corporate finance theory and by doing so contributes to making a new type of textbook, which is quite on time and is likely to become essential reading for all graduate students in corporate finance and microeconomics and for everyone interested in these disciplines.

Dividend Announcement and Market Efficiency- An Empirical Study on Service Sector Companies Listed in BSE

Dividend Policy is a crucial decision area in the field of corporate finance and informational efficiency of the market has always been an area of vital interest for financial economists. The literature review documented that in imperfect capital markets with information asymmetries, the dividend announcement affects shareholder wealth. However, very few attempts have been made so far to know dividend behavior of Service sector firms in India. The present study is a little research effort in this direction. This study analyses if the announcements of dividend of stocks listed in Bombay Stock Exchange conveys any information. Fulfilling the study, we calculated the average abnormal return by applying the event study methodology. Daily stock data of 193 firms with market model adjustments on 2436 dividend announcements were used for the period 2000 to 2016 to analyze market efficiency. This study reports stock price reactions of banking, health care, IT and realty sector surrounding 21 days event window of the dividend announcement. The results found mixed results with majority of the firms having presence of informational efficiency in Indian service sector. In Realty sectors stock price reaction to dividend announcement is not statistically significant whereas for other three sectors, Banking, IT and Healthcare, it is significant.

The business of sport and the sport of business: A review of the compensation literature in finance and sports

This paper provides a review of literature measuring the value of human capital in the sports markets and the field of corporate finance. We discuss the seminal literature in both fields. We then compare and contrast these two fields of research and show that many studies in both fields have found similar relationships for compensation. However, the link between compensation and performance is strongest in the sports literature. Our goal is to link these two fields of research so as to better understand compensation and performance and thus, further our understanding of the best compensation practices to use in business.

Dividend Determinant in Emerging Economy: An Empirical Evidence of Selected Manufacturing Firms of India

The current research work is an attempt to explore and identify the determinant of dividend policy with special reference to manufacturing industry of India. For this purpose, five key determinants have been identified based on the review of literature and study have been conducted on eight selected firms of Indian Manufacturing Industry listed in Bombay Stock Exchange. The study was conducted during the period of 2013 to 2015 and multiple regression analysis has been used for identifying and establishing the relationship between key determinant and its effect on dividend policy. The research revealed the significant and positive impact of free cash flow on dividend policy whereas managerial ownership has a significant but negative impact. All other independent variables such as debt policy, firm size and profitability do not have a significant effect on the dividend policy of the firm. Keeping in view the industry specific characteristic the present study is an attempt to fill the dearth of empirical evidences in field of corporate finance with special reference to emerging economies like India.

GAME THEORY: MINIMISING THE COST OF CAPITAL VS. MAXIMISING THE RETURN OF INVESTORS

The application of game theory to financial transactions focuses on two categories of stakeholders: users of financing (firms) and providers of financing (investors). The core of game theory consists in the strategy that a partner is able to build starting from the possible decisions of the other partner (each party having opposing interests). In fact, we deal here with a cooperative game in which both opponents seek to maximise their own chances of winning. The article aims to highlight the manner in which mathematical game theory is transposed in the field of corporate finance by balancing the firm’s objectives (maximising market value by minimising the cost of raising capital) and the investors’ objectives (maximising returns on investments). The intended novelty of this paper lies in developing a model for optimising a firm’s financial structure and assessing it in terms of investors’ interests.

Novel feature selection methods to financial distress prediction

Financially distressed prediction (FDP) has been a widely and continually studied topic in the field of corporate finance. One of the core problems to FDP is to design effective feature selection algorithms. In contrast to existing approaches, we propose an integrated approach to feature selection for the FDP problem that embeds expert knowledge with the wrapper method. The financial features are categorized into seven classes according to their financial semantics based on experts’ domain knowledge surveyed from literature. We then apply the wrapper method to search for “good” feature subsets consisting of top candidates from each feature class. For concept verification, we compare several scholars’ models as well as leading feature selection methods with the proposed method. Our empirical experiment indicates that the prediction model based on the feature set selected by the proposed method outperforms those models based on traditional feature selection methods in terms of prediction accuracy.

Ensemble Subsampling for Imbalanced Multivariate Two-Sample Tests

Some existing nonparametric two-sample tests for equality of multivariate distributions perform unsatisfactorily when the two sample sizes are unbalanced. In particular, the power of these tests tends to diminish with increasingly unbalanced sample sizes. In this article, we propose a new testing procedure to solve this problem. The proposed test, based on the nearest neighbor method by Schilling, employs a novel ensemble subsampling scheme to remedy this issue. More specifically, the test statistic is a weighted average of a collection of statistics, each associated with a randomly selected subsample of the data. We derive the asymptotic distribution of the test statistic under the null hypothesis and show that the new test is consistent against all alternatives when the ratio of the sample sizes either goes to a finite limit or tends to infinity. Via simulated data examples we demonstrate that the new test has increasing power with increasing sample size ratio when the size of the smaller sample is fixed. The test is applied to a real-data example in the field of corporate finance. Supplementary materials for this article are available online.

Short-Term Decisions in the Field of Corporate Finance for Example, Company X in the Industry: Postal and Courier Activities

The presented report is to show the basic assumptions in the short-term investment decisions in the company. These decisions lead to an increase in capital and enrichment owners. It has been prepared on the example of the market-dominant companies from the courier.

Short-term Decisions in Company Finance - Food Industry

This paper deals with the short-term decisions in the field of corporate finance, undertaken on the basis of an analysis of cash flows, liquidity ratios and operational indicator. Pictured is an example of food industry companies (hereinafter referred to as company X).

Logistic Regression Model for Business Failures Prediction of Technology Industry in Thailand

Since the large number of parties involved in corporate failure or ‘business failure’, the avoidance of failure has always been an important issue in the field of corporate finance and business management. In this paper, the model was developed to predict business failure in Thailand particular in technology industry by using four variables from Altman’s model and adding one variable to the model. Descriptive statistics, correlation, and independent T-test are used for testing to see the characteristics of each variable on both failed and non-failed companies. The model was developed by using the stepwise logistic regression. Samples were developed by using financial information from private limited companies based on technology industry in Bangkok. The result from this empirical study can conclude that financial ratios are useful analytical techniques for forecasting financial health of companies in technology industry. The result of independent T-test has pointed out sales to total assets ratio is the only significant independent variable indicating significant differences between failed and non-failed group. The Nagelkerke R2 indicated 42.4% of the variation in the outcome variable. The predictability accuracy of the model is 77.8% which is under 95% confidence level.

The Research Plan: Time for the Evaluation

Dear readers, since the first number of its first volume the European Financial and Accounting Journal has been issued in the framework of research plan Development of Financial and Accounting Theory and its Application in Practice fromInterdisciplinary Point of View. Nevertheless, every research project has its prescribed time of solution, so with the last day of passed year 2011 it also terminated seven years journey full of joy and sorrow connected with this research plan. For us, investigators, now it comes time to summarise reached results, evaluation of benefits and elaboration of a final report. A proposal for each research project is every time submitted with exactly stated objective. Our objective consisted in interconnection of particular levels of scientific research from basic research based namely of model solution of agency costs via determination of cornerstone theoretical postulates toward applied research that shall address three areas - national and international accounting and valuation standards, in empirical studies dealing with development in financial markets and development of accounting variables (and ratios) in the Czech Republic and other countries, in preparation of models of information management and financial decision-making in business sector. From the point of view of basic research, the main output consists in model of agency costs with the most important agents and principals in Czech economic, political and social environment. In the framework of financial accounting, a primary attention was focused on the field of international harmonization of accounting, then audit issues, mergers and acquisitions, accounting of non-profit organisations and information in accounting. Research team has entered actively through the National Accounting Council into the process of harmonisation and participated in making a lot of interpretations to Czech Accounting Standards. Research in management accounting was concentrated on formation and using management oriented information systems in order to increase an ability of management accounting and to improve the information support for the needs of strategic management. Investigation in the field of corporate finance and valuation has resulted mainly in proposal of Czech valuation standards, elaboration of financial decision making methodology, transfer pricing construction and financial analytical study of Czech companies. However, every result has two sides: formal and content. From the formal point of view, it should be noticed 788 registered publications in Czech Information Register of R&D Results, including 69 monographs, 289 articles in journals with review process and 430 papers presented at conferences. Our research team has been also participated in organization of scientific conferences and has issued two scientific journals including European Financial and Accounting Journal. For the five years of its existence 79 articles with review process were published in this journal. Some articles have raised the attention of the scientific public and have been cited in other journals, some were used in teaching and some, as it happens, then fell into faded into obscurity. Nevertheless, I would dare say that journal have found his place in the sun. Finally, the research plan terminated. However, in the same way as our research team does not close its discovery ambitions, does not terminated publishing of European Financial and Accounting Journal. Since 2012 it will be newly issued in the framework of The Institutional Support to Long-term Conceptual Development of Research Institution at the Faculty of Finance and Accounting of the University of Economics, Prague.

A Discussion on the Signaling Hypothesis of Dividend Policy

This paper discusses the signaling hypothesis of corporate dividend policy. We discuss this traditionally important matter in the field of corporate finance by introducing both classic and newest related studies. There seem to be some general agreements on the dividend-signaling hypothesis; however, our discussions include the following new viewpoints. First is the possibility of the firm risk changes after dividend policy changes. Second is the linkage between market efficiency and dividend policy. Third is the reality of dividend policy changes as signals by corporate managers. We consider that our many-sided discussions on the dividend-signaling hypothesis with reviewing both classic and newest literature contribute to theoretical and empirical future related research in this field.

Logistic Regression Model for Business Failures Prediction of Technology Industry in Thailand

Since the large number of parties involved in corporate failure or 'business failure', the avoidance of failure has always been an important issue in the field of corporate finance and business management. In this paper, the model was developed to predict business failure in Thailand particular in technology industry by using four variables from Altman's model and adding one variable to the model. Descriptive statistics, correlation, and independent T-test are used for testing to see the characteristics of each variable on both failed and non-failed companies. The model was developed by using the stepwise logistic regression. Samples were developed by using financial information from private limited companies based on technology industry in Bangkok. The result from this empirical study can conclude that financial ratios are useful analytical techniques for forecasting financial health of companies in technology industry. The result of independent T-test has pointed out sales to total assets ratio is the only significant independent variable indicating significant differences between failed and non-failed group. The Nagelkerke R 2 indicated 42.4% of the variation in the outcome variable. The predictability accuracy of the model is 77.8% which is under 95% confidence level.

Financial distress prediction based on serial combination of multiple classifiers

Financial distress is the most synthetic form of business crisis and financial distress prediction (FDP) has been a widely and continually studied topic in the field of corporate finance. Recently, the advantage of FDP based on multiple classifiers’ combination began to be emphasized. This paper attempts to put forward a FDP method based on serial combination of multiple classifiers, which tries to make use of class-wise expertise of diverse base classifiers in serial combination system. Framework of serial combination system for FDP, selection mechanism of base classifiers and algorithm of FDP based on serial combination are discussed in detail. With financial condition dividing into two categories, empirical experiment indicated that FDP method based on serial combination of multiple classifiers performs at least as well as the best base classifier in average accuracy and stability, but it did not show much advantage in information complementation from base classifiers and was easy to be dominated by the first base classifier in serial combination system. This may be attributed to the number of target categories and serial combination method was inferred to be more suitable for FDP with multiple categories, which leaves to be further studied.

Valuation and Dividend-Based Debt Policy

It is widely recognized in the field of corporate finance, when valuing a levered project or firm, that the debt tax shield adds value to the unlevered project or firm. However, the value of the tax shield remains subject of debate as Luehrman (1997) points out. Research studies have tended to focus on either the fixed debt policies of Modigliani and Miller (1963) or the value-based debt policies of Miles and Ezzell (1980). This paper introduces an innovative valuation model where the debt tax shield risk depends on dividends paid out. These are based on the Lintner (1956) dividend model. Two noteworthy implications of this debt policy arise. First, it corroborates that dividend policy and optimal investment are independent variables, whereas debt policy is treated as a dependent variable. Second, the applicable rate with which tax shields are discounted can be even smaller than the cost of debt. Hence, the value of such a tax shield is greater than that of a fixed debt policy.

Corporate finance and state enterprise reform in China

This paper uses a novel approach in addressing two puzzles in the field of corporate finance in China, where government is a major player. In addition to the traditional approach based on agency theory and information asymmetry, the paper uses the political costs approach in studying the stock dividend puzzle and rights issues puzzle. The paper finds that the extent of political interference, managerial entrenchment, and institutional control affects corporate financing choices and dividend distribution decisions. The result sheds new light on improving the important corporate governance aspects of state enterprise reform in China.

The new frontiers of corporate finance

Financial architecture can be a very important and powerful concept to approach research as well as business education within the field of corporate finance in the future. Financial architecture can be viewed as a wheel and the different aspects of it as its spokes. This paper uses this framework to present an overview of the different important aspects that make up a financial architecture for new economy firms and simultaneously introduce and position the various contributing papers in the special issue on The New Frontiers of Corporate Finance.