Financial Ownership Research Articles

The African Standby Force: External Support to an ‘African Solution to African Problems’?

SummaryExternal support is essential to the development of the African Standby Force (ASF), an African‐led mechanism for crisis management and peace consolidation in Africa. This research paper examines external support to the ASF by several bilateral and multinational contributors, assessing its strengths and limits, and attempts to measure the significance of the support to the aspired outcome.The starting point of the study is an analysis of the fast‐evolving ASF project, which has gone through many phases of definition and redefinition since it was conceived in the late 1990s. The ASF, it is argued, is a ‘moving target’, due to the inability of African stakeholders to settle on a clear concept, setting themselves ever more ambitious goals at every stage. Partners simultaneously suffer from, and contribute to this state of affairs. Whilst coordination efforts are undertaken, partners' support too often still responds to national (for bilateral donors) or institutional interests (for multilateral ones), each partner using the leeway created by the conceptual ambiguities of the ASF to press its own priorities. Given the overwhelming role of partners in the conceptual maturation of the ASF, and the impact of their funding decisions, this is turn exacerbates the confusion about the true direction of its development. Said differently, the ASF is burdened by the lack of political, conceptual, and financial ownership on the side of the recipients, who are also its main stakeholders. The result is at best an ambiguous partnership, and at worst a waste of human resources, financial means and political capital.Attempting to differentiate between degrees of ‘ownership’, the study concludes that it is only if AU member states make a conscious effort to increase their political, conceptual and especially, financial, stake in the ASF that they will credibly demonstrate that it is not an entirely foreign‐mastered project, but a real ‘African solution to African problems’.

Income tax liability for large corporations in China: 1998‐2007

Purpose – The purpose of this paper is to examine long‐term income tax liability for Chinese public corporations from 1998 to 2007. It also studies the factors that are associated with Chinese firms' long‐run effective tax rates.Design/methodology/approach – The paper uses the measurement of long‐run effective tax rate, developed by Dyreng et al., which is measured as the sum of taxes paid over ten years divided by the sum of pretax book income over those same ten years. This paper is an empirical study using the financial report data collected from China stock market financial statement database and corporate ownership structure change from SINA Finance database. The tests include both univariate and multivariate tests.Findings – The paper's findings are: ten‐year effective tax rates are considerably lower than the statutory tax rate; ten‐year effective tax rates vary significantly across industries and geographic areas; profitability, firm size, capital structure, and capital intensity are all associate...

Collaborative planning, forecasting and replenishment (CPFR) as a relational contract: an incomplete contracting perspective

This paper analyses collaborative planning, forecasting and replenishment (CPFR) from an incomplete contracting perspective. In the absence of economic incentive problems, CPFR enables trading partners to improve operational efficiency through a structured process of learning by both sharing and utilising information across firm-level boundaries. From a review of the incomplete contracts literature and a case study of the CPFR arrangement between P&G and Wal-Mart, this paper posits CPFR as a relational contract for managing economic incentive problems, which can arise in a vertical supply relationship due to transaction costs, agency costs, and relative bargaining positions. Theoretical propositions are developed regarding when this IT-supported intermediate form of vertical contracting is preferred to other governance modes and how CPFR can be an effective relational contract to support economic exchange and to create intellectual capital between trading partners. With efficient vertical coordination and enhanced specialisation incentives for mutual commitment, CPFR allows contracting parties to avoid the difficulties of formal contracting while realising the benefits that would be anticipated from vertical financial ownership.

Strategic vs. Financial Corporate Ownership: A Theoretical Approach

Strategic vs. Financial Corporate Ownership: A Theoretical Approach

Vertical Integration in Sequential Negotiations

We study vertical integration in the form of financial ownership as a way to improve the bargaining position of a firm in sequential negotiations. In our model an upstream monopolist bargains sequentially with two downstream firms over production agreements. If the bargaining sequence is pre-determined, then integrating with one of the downstream firms helps the monopolist to extract more rents from the other firm, by raising his outside option in negotiations. If, on the other hand, the monopolist can choose his bargaining partner, then integration produces an additional effect: it serves as a commitment device of no return to the non-integrated firm after a breakdown of negotiations. This makes that firm more willing to settle today, and at higher price. These favorable effects, however, only realize if the downstream firms are strategic substitutes, and are reversed if they are complements. In the case when the principal is located downstream, and we find the surprising result that his expected profits are unaffected by vertical integration.

Financial Development, Bank Ownership, and Growth: Or, Does Quantity Imply Quality?

In 1980, India nationalized its large private banks. This induced different bank ownership patterns across different towns, allowing credible identification of the effects of bank ownership on financial development, lending rates, and the quality of intermediation, as well as employment and investment. Credit markets with nationalized banks experienced faster credit growth during a period of financial repression. Nationalization led to lower interest rates and lower quality intermediation, and may have slowed employment gains in trade and services. Development lending goals were met, but these had no impact on the real economy.

THE MARKET VALUATION OF KNOWLEDGE ASSETS

This paper studies the market valuation of R&D in Denmark for 1989–2001, adding to the limited number of studies of countries outside of the US or the UK. In terms of financial systems or ownership structure, Denmark can be seen as an intermediate case between Anglo-Saxon models in the US and the UK and large continental European countries such as France, Germany and Italy. In order to facilitate international comparison, the analysis follows Hall and Oriani (2006), and it is found that the relative shadow value of R&D for Denmark is larger than comparable values for France, Germany, Italy and the US, and similar to those for the UK. Though, while relative shadow values are high overall, shadow values are substantially lower for firms with high R&D intensity. The role of ownership structure is also examined and it is found, in contrast to comparable results for France and Italy, that R&D is actually valued more highly in Danish firms with a single large shareholder. It is argued that this difference may be due to greater investor protection in Denmark.

Financial Decisions, Ownership Structure and Growth Opportunities: An Analysis of Brazilian Firms

This paper analyzes the influence of financial decisions and ownership structure on firm value in function of whether companies have profitable growth opportunities for a sample of 182 listed Brazilian firms during the period 1995-2004. Concerning financial leverage, the results offer support for both the underinvestment and overinvestment hypotheses. Dividends have a dual role, since they both signal growth opportunities and reduce managerial discretion. The results also show that ownership structure has an asymmetric impact. On the one hand, ownership concentration improves the value of all the firms, irrespective of the growth opportunities. But on the other, for firms with growth opportunities there is a risk that the large shareholders will expropriate wealth at the expense of the minority shareholders, as shown by the non-linear relation uncovered.

Financial Decisions, Ownership and Governance on Corporate Value

The study applies an integrated empirical framework, in order to investigate the impact of financial decisions (debt and dividend policies) on corporate performance and firm market value. Particular attention is paid to the joint implications associated with different ownership and corporate governance structures. Based on a unique variable set, obtained from a sample of 166 Greek companies listed in the Athens Stock Exchange, the empirical analysis contributes a range of innovative and interesting conclusions, distinguishing between firms that face and firms that do not face growth opportunities. The empirical results confirm the relevance of debt and dividends in terms of firm value creation by showing a negative relationship between firm value and both leverage and dividend payments in the presence of growth opportunities. The impact of different ownership structures in the allocation of firm resources is also demonstrated.

Venture Capital Investments and Financing in Estonia: A Case Study Approach

The aim of the article is to describe how Estonian venture capitalists make financing and investment decisions, and compare these results with theoretical recommendations found in corporate finance and venture capital literature. The focus is on the methodological procedures in venture capital investment and financing. A case study approach is used to collect information about the current practice of venture capital investments and financing in Estonia. Five of the largest Estonian venture capital funds were analyzed in this article, and different problems have been presented in the article. Some of them require an academic and some a practical solution. The problems are divided into four parts: venture capital deal structuring, corporate governance and investor protection, the cost of venture capital and valuation. Venture capital deal structuring is discussed first, and we look at of the following topics: syndication, staged investment, use of financial instruments, ownership share and dilution problems. Syndication of investments, staged investments and convertible financial instruments are used quite rarely by Estonian venture capitalists. Most Estonian venture capitalists take a minority holding in their portfolio companies and the ownership share changes mainly due to the use of convertible instruments and financial options. Estonian venture capitalists do not consider this kind of dilution a big problem. Most Estonian venture capitalists do not have a measure of the required rate of return as considered in financial theory. The determination of the rate of return among Estonian venture capitalists is more intuitive: they use an internal rate of return instead. The required rates of return used by Estonian venture capitalists have about the same interval as in the rest of the world. Corporate control and investor protection are important issues in the venture capital process. These are closely linked to deal structuring. The Estonian Commercial code has average investor protection, but it restricts the use of preferred shares, which are often used in venture capital deal structuring abroad. Some corporate control problems have arisen at the board level in Estonia. Although venture capitalists do not use complicated models to find the cost of capital, they pay much more attention to complicated valuation models. Multiples, book value, and DCF methods are used. Numerical analysis is not as important as the authors expected. Much attention is paid to the linkages between these themes.

Institutional ownership and corporate value

PurposePrior studies examining the relation between the shareholdings by institutional investors and firm value have produced mixed results. These studies have assumed that a linear relation exists between corporate value and institutional shareholdings. The purpose of this study is to further investigate the nature of this relationship and by partitioning institutional investors into institutions that have appointed a representative to the board of directors of the firms in which they have a block investment and institutions with a similar holding but without a representative on the board of directors.Design/methodology/approachThe study is based on a sample of 123 firms with available financial and institutional ownership data. A cross‐sectional regression analysis is used to test the relation between corporate value and institutional ownership with and without board representation.FindingsThe results of the study suggest that share ownership by investors with board representation is positively related to the value of the firm at lower levels of ownership. However, as the share ownership increases, the impact on the value of the firm becomes negative, giving rise to a non‐linear relation. The extent of shareholding by institutions without board representation, on the other hand, is not related to the value of the firm.Research limitations/implicationsThe findings show that institutions with board representation have greater incentives to monitor management, and therefore their presence should have a positive influence on firm value. However, at high levels of ownership, institutional investors with board representation may induce boards of directors to make sub‐optimal decisions.Originality/valueThe study provides a deeper understanding of the relationship between firm value and institutional ownership. That is, the effect of shareholding by institutions with board representation is likely to have a non‐linear relation with firm value.

An Empirical Study on the Impact of Financial Knowledge on Household Portfolio

Indian government has introduced defined contribution pension plans to the newly recruited employees from January 2004. 7 State governments have introduced the scheme to their employees and others have shown interest. The new system calls for the participant to manage their contribution by placing the responsibilities in deciding where their contribution should be invested and who should manage their contribution etc. However the author feels that the work force is not ready to take such decision. Thus the study aimed at looking in to this aspect by analyzing the relationship between the financial knowledge and the investment of households in risky assets. The study found the existence of a significant and positive relationship between the financial knowledge and ownership of risky assets, which calls the attention of the policy makers while proceeding further in implementing the defined contribution pension plan.

Mutual commitment to support exchange: relation-specific IT system as a substitute for managerial hierarchy

This paper examines the effects of information technology (IT) on the governance of vertically related firms. We propose that a highly relation-specific IT system in inter-firm transactions plays a key role in the resulting inter-firm governance as a mutual sunk-cost commitment, in terms of leading to both less vertical integration (i.e., a change in governance mode as a first-order effect) and a smaller number of suppliers (i.e., a change within a governance mode as a second-order effect). As a result, this highly relation-specific IT system (bilateral investment) can be an alternative governance mode of electronic integration that acts as a substitute for managerial hierarchy and vertical financial ownership. From a strategic management perspective, this paper provides transaction costs and resource-based explanations on IT systems' impact on the organizational boundary decision and its impact on the likelihood of the firm achieving sustainable competitive advantage. Copyright © 2006 John Wiley & Sons, Ltd.

Revisiting agency and transaction costs theory predictions on vertical financial ownership and contracting: electronic integration as an organizational form choice

This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies. Copyright © 2006 John Wiley & Sons, Ltd.

The value of financial freedom and ownership in opportunities of entrepreneurial harvest

Mergers and acquisitions can play a key role in consolidation of highly fragmented industries and in a company's on-going growth. From the entrepreneur's point of view, merging with a larger company or being acquired makes perfect sense when he finds it is the appropriate timing for capturing the value that has been created through the venture. This paper argues that the financial freedom of the entrepreneur and the non-existence of agency problems between managers and owners which reduce the myopic short times bias of managers are sources of value not reflected in the financial statements. The evidence is presented using the case study methodology in 12 opportunities of entrepreneurial harvest. Consequently, the study calls the attention of users of financial information to the dangers of traditional financial analysis and valuation methods without a deep understanding of the economic grounds of the entrepreneurial firm analysed.

Measuring the Probability of Informed Trading in an Order-Driven Auction Market and a Comprehensive Analysis on the Determinants of Informed Trading

In this study, we are able to estimate the probability of informed trading on a transactional basis, which makes the hitherto difficult task of examining the transactional dynamics between informed trading, market depth and spread feasible. In addition, we have integrated the determinants of informed trading by a comprehensive analysis. We find that, as informed traders arrive, current volume and spread increase. This supports the clustering of trading hypothesis and provides empirical evidence to Admati and Pfleiderer (1988) viewpoint that both volatility and volume increase with informed trading. The VAR result suggests that uninformed traders avoid trading with the informed, and the decision of the uninformed depends on previous condition. The decision of the informed is based more on current situation and is attracted by price volatility. Overall, it is clear that the ultimate determinants of informed trading lies with the firm's financial quality and ownership structure. The condition of the market influences the timing of the informed trading, rather than the level of informed trading between firms.

Managerial style and its managerial implications for organizations in the Slovak republic

Abstract The article presents outcomes of a survey focusing on a style of management in Slovak organizations, using Blake & Mouton's managerial grid. The results presented ate based on a survey, consisting of a sample of 512 questionnaires addressing all managerial levels in Slovak companies. The corporations included in the survey are from various industries and fields of business as well as of different financial and capital ownership structures. The main objective of the survey is to portray management style of the managers in Slovakia from the perspective of managerial grid, analyzing people or task orientation in their managerial work. Further, the paper illustrates the differences in management style regarding the gender and the capital ownership of the company and depicts the consistency of the management style in relation to subordinates with the preferred management style from the superiors.

Financial Ownership, Diversification and Firm Profitability in Japan

The Japanese system of corporate governance andin particular the role played by banks andother financial institutions have been thesubject of considerable research andcontroversy in recent years. We estimate theimpact of equity ownership by financialinstitutions on firm performance in Japan for1986–1991, a period that precedes many of theproblems of the ensuing decade. We find thatwhile ownership by financial institutions isassociated with unprofitable diversification,such ownership is, on balance, positivelyassociated with firm profitability. Someimplications of these findings for Japan'sunique system of governance are discussed.

Performance and Policy of Foundation‐owned Firms in Germany

This paper compares performance and policy of foundation‐owned firms and of listed corporations in Germany. Foundations have no owners so that there exist no individuals with financial ownership claims on firms which are wholly owned by foundations. This suggests weaker outside control of foundation‐owned firms implying lower profitability. The empirical findings show a slightly better performance of foundation‐owned firms compared to corporations. Foundation‐owned firms display higher labour intensity, lower labour productivity, and lower salary levels. This policy promotes job security without endangering the viability of foundation‐owned firms.

STOCK-OPTION CULTURES: EMPLOYEE OWNERSHIP IN A HIGH-GROWTH SOFTWARE COMPANY.

Using qualitative data, this paper examines how granting employees stock options in a high-growth company impacts their work attitudes and behaviors. Stock options have been posited to reduce agency costs by aligning employees' interests with those of the shareholders (Cyr and Welbourne 1997), but this study challenges this claim and suggests that there may be a threshold effect whereby too much financial ownership in a firm may have negative effects on employees' attitudes and behaviors. By showing how employees' experiences of ownership evolve as the company transitions from a small entrepreneurial company to a public company traded on the NASDAQ stock exchange, the findings reveal several boundary conditions of agency theory. Although companies use stock options as a way to motivate employees and align their interest with those of shareholders, this research suggest that this can be a risky strategy, particularly in volatile stock markets.