Dissertations / Theses on the topic 'Corporate Financial Management'

The objective of this thesis is to investigate the influence of corporate diversification on firm value and financial management. The first study in the thesis examines whether and how organisational learning from diversification experience affects the crosssectional variation of the value of diversified firms. Three main findings are reported: first, a U-shaped relationship between diversification value and diversification experience is identified; second, greater similarity in industries between diversifications results in a higher diversification value. Finally, the relationship between the value of diversification and the temporal interval between diversifications forms an inverted Ushaped curve. In an extended analysis, external learning from the experience of others is shown to affect diversification value in a cubic pattern. While investigating cross-sectional distribution of diversification value is an increasingly common approach to the topic, research on the average value effect of diversification remain important in the literature. The second study directly investigates the effect of diversification on investor wealth. By adopting a novel portfolio simulation approach, the study shows that investing in portfolios of diversified firms provides a higher return and lower risk than investing in portfolios of specialised firms. Further analysis, however, shows that these benefits from corporate diversification can be better achieved by shareholders’ self-diversified portfolios. This finding implies that corporate diversification may not be necessary for shareholders’ benefit. The final analysis in the study provides evidence that firm diversification is more likely motivated by the managerial risk preferences. The relationship between diversification and firm value may be explained by the diversification effects on firm operations. Researchers often relate diversification discount to wasteful spending by diversified firms. The third study examines financial management in diversified firms by looking at how these firms adjust their cash flows. More specifically, following the findings of Duchin (2010) and Subramaniam, Tang, Yue and Zhou (2011) that diversified firms hold significantly less cash than specialised firms, the study investigates how diversified firms manage their cash flows to achieve this lower cash balance. The study finds that diversified firms have a higher free cash flow (as a result of having similar operating cash flow but lower investing cash flow), and a lower financing cash flow compared to specialised firms. More particularly, it shows that diversified firms issue less debt and pay out more dividends, relative to specialised firms. The study also provides evidence of the active role of internal capital markets in a firm’s financial management. Collectively, three major conclusions can be withdrawn. First, learning from both internal and external diversification experience has a significant effect on the value of diversification. Second, investing in portfolios of diversified firms generates better results than does investing in portfolios of specialised firms. Thus, the conventional wisdom in the literature that diversification destroys shareholder wealth may not be wholly correct. Third, the findings that diversified firms have similar operating cash flow, lower investing cash flow, higher dividends and lower cash holdings do not indicate that such firms have overinvestment problems.

The prospect of business failure Is not a topic that most businesses care to acknowledge. However, in the construction industry failure Is a real possibility. The construction industry has several characteristics that sharply distinguish it from other sectors of the economy. The low level of working capital required to operate a contracting firm and the sensitivity of different sectors within the construction market to the economy are two of the most Important factors affecting the Industry. Previous attempts to identlfr and solve the problem of business failure concentrated upon the modification of contract regulations and did not receive considerable support. In the meantime, contractors should plan and control their activities in accordance with current environments and regulations. The Importance of cash flow forecasting is well emphasized In literature as current models failed to produce feasible and reliable tools. Being a large and well diversified organisation can be a good solution to the problems indicated above. The output of large construction companies is less sensitive to variations in the economy. The low level of working capital required to operate contracting activities Is balanced by other capital intensive businesses. The sensitivity of the construction company in general and the contracting division in particular to the fluctuations In individual contracts is limited. This is due to the large collateral available and the high number of contracts executed. Whilst maintaining all these advantages, large construction companies have failed to dominate a respectable share of the market against the high number of small and unstable contracting firms. Current practices with respect to corporate planning, financial planning and financial budgeting were examined in this research. A survey was undertaken for medium to large construction companies and findings confirmed that these practices were exercised inefficiently. Based on these findings, a corporate financial model was developed on a computer to assist medium to large construction divisions formulate and evaluate strategies. The model simulates strategies and environments and produces a comprehensive financial report which can then be used by contractors to control performance. The model generates construction output by integrating individual contracts. An Important part of the model Is the single net cash flow forecasting module. This module fulfilled other explicit applications for small as well as large contracting firms. The two models were evaluated through several tests and proved to be reliable. Current budgeting techniques were evaluated against the proposed model and were confirmed to be significantly incorrect. Contractors should not rely on their budgets and must use a model which is made to Incorporate variations In strategies and environments (i.e. the C.F.M.C.C.).

The insurance industry continues to experience financial scandals despite increasing pressure to integrate sound governance practices. The purpose of this multiple case study was to explore the corporate governance strategies insurance business leaders used to support financial performance. The targeted population consisted of 7 business leaders from 7 insurance companies in Austria who have used corporate governance strategies successfully to support financial performance. The conceptual framework of this study was the agency theory. Data for the study were gathered from face-to-face semistructured interviews and a review of company documents. The data were analyzed using Yin's 5 nonlinear interlinked steps for assembling, disassembling, reconvening, inferring, and formulating conclusions. Three themes emerged from the data analysis: the need for a robust risk-management system, effective internal control mechanisms, and consistent application and compliance with corporate governance principles and regulations. The implications for positive social change include the potential for business leaders in the local community to restore confidence in the stability and financial performance of the insurance industry by establishing corporate governance structures with a robust risk-management system and processes that support transparency and accountability.

Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2006.
"June, 2006."
Includes bibliographical references.
Chi: Subsidiary Debt, Capital Structure, and Internal Capital Markets I investigate external subsidiary debt financing and its implications for internal capital markets. I find that firms tend to finance business segments with subsidiary debt when those segments have better investment opportunities than the rest of the firm, and such debt tends to be parent-guaranteed. I also find that having such debt outstanding significantly reduces the effect of a segment's cash flow on the capital expenditures of other segments. These findings suggest that firms use subsidiary debt to protect their stronger segments from the underfunding or "poaching" problems modeled in theories of internal capital markets. In addition, I find that firms use subsidiary debt for reasons related to traditional capital structure concerns. Ch2: Is the Chinese Wall too High? I test whether new regulatory restrictions on cooperation between analysts and investment bankers adversely affect equity research coverage. Contrary to the hypothesis, I find that firms engaging in SEO's enjoy just as large an increase in analyst coverage in the post-regulatory period as they do in the pre-regulatory period.
(cont.) In addition, while I find that analyst coverage in the post regulatory period significantly declines for new IPOs, it declines by an equal amount for a control group of comparable firms that pay no such fees. Making the identifying assumption that any adverse consequences of the new restrictions should be larger for IPO's, I conclude that the restrictions have no adverse impact on analyst coverage. Ch3: Investment Banking and Analyst Objectivity' This chapter uncovers evidence that conflicts of interest arising from M&A advisory relations influence analysts' recommendations, corroborating regulators' and practitioners' suspicions on a topic not previously examined in the academic literature. In addition, the M&A context allows us to disentangle the conflict of interest effect from selection bias. We find that analysts affiliated with acquirer advisors upgrade acquirer stocks around M&A deals, even around all-cash deals, wherein selection bias is unlikely. Also consistent with conflict of interest, but not selection bias, target-affiliated analysts publish optimistic reports about acquirers after, but not before, the exchange ratio of an all-stock deal is set.
by Adam C. Kolasinski.
Ph.D.

Consumers are demanding that corporations become more socially responsible. Executives are challenged to maximize shareholders' returns with achieving a favorable corporate citizen status. The research problem was a gap in knowledge and understanding of the impact of corporate social responsibility on financial performance. This study used multiple linear regression to assess the relationship between key indicators of corporate social responsibility and financial performance from 372 corporations in the S&P500 in 2014. The theoretical foundation was Freeman's stakeholder theory. Environment, community, human rights, diversity, employee relations, product quality, and corporate governance were measures of social performance. Return on assets was used to measure financial performance. When corporate social responsibility was evaluated as an aggregate variable, a significant and negative relationship was found in the financial and material sectors. When corporate social responsibility variables were evaluated independently, employee relations and product quality in the healthcare sector, and community in the financial sector, were found to be positively significant. Environment, product quality, and corporate governance in the financial sector, and employee relations in the consumer and energy sectors, were found to be negatively significant. This study revealed that the relationship between some social variables and financial performance are significant, but not always in a positive direction. Practitioners, executives, and managers can use the findings to evaluate their firm's social position, develop strategies to address gaps, and undertake actions to enhance their firm's social performance, thereby creating positive social change in the community.

Bibliography: leaves 103-112.
This study investigates the effects that various ownership structures have on company performance. It is assumed that the ownership structure of the firm dictates the manner in which the firm monitors its managers. It is further assumed that the objective of the firm is to maximise shareholder wealth. The study therefore analyses which ownership structure provides shareholders with the greatest returns. Such a system would add the most to an economy's efficiency. It was concluded that of the three systems identified, not one system provided shareholders with a return significantly different from the others. The study added to the current South African debate as to whether or not the concentration of economic power detracts from the country's economic efficiency. Statistical evidence proves that companies owned by any of the large South African groupings are no less productive than companies otherwise owned.

This paper investigates how corporate investment is influenced by the non-fundamental component of stock prices. Previous research conducted has found that investment is sensitive to equity mispricing where both the stock is undervalued and the firm is dependent on equity. Under these conditions the firm would need to issue undervalued equity to fund new investment. The suggestion is that the investment behaviours of equity dependent firms display a stronger correlation to stock prices than firms that are not dependent on equity. It is of particular interest to investigate the effect of equity-dependence on corporate investment in South Africa as developing economies often do not have access to debt due to under-developed credit markets.

Corporate turnaround, in comparison to financial distress, is not substantially researched either internationally or locally in South Africa. This study attempts to explore this area of research by developing models that identify financially distressed companies with a potential for turnaround. This analysis examines listed companies on both the JSE Securities Exchange ('JSE') and Alternative Exchange ('AltX') for the period 2007 to 2014 by using available data from iNet BFA. The financial distress model, Taffler's Z-score, is used to identify companies that fall within the sample. Multiple linear discriminant models with interaction variables are used as part of the process to derive the turnaround models. The first model shows that efficiency is a key driver for a successful turnaround. The second model reveals that JSE-listed companies are more likely to survive than AltX companies. This study contributes to the existing research by identifying significant factors for corporate turnaround and summarizing its findings in a practical manner.

Includes bibliographica references (leaves 107-114).
The aim of this research was to establish whether corporate social responsibility (CSR) affects a company's image by researching stakeholders' views on the CSR of an unlisted company operating in South Africa. Stakeholders of the organisation were identified and questionnaires were sent to Board members, management, employees, suppliers and customers. The results of the questionnaires were analysed to establish stakeholders' views of CSR and the implications thereof. The research provided insights into stakeholders' views on CSR and highlighted the significance of CSR to companies

The economic cost of financial statement fraud continues to be a problem for organizations and society. The research problem addressed in this study was the limited risk management strategies available for the early detection and prevention of financial statement fraud by corporate managers and auditors. These strategies are important to the proactive prevention of fraud. This study is important to future trustworthiness of financial statements. The purpose of this qualitative, multiple-case study was to explore current early detection and prevention methods in financial statement fraud using a risk management conceptual framework. The research question focused on current fraud detection and prevention policies and risk management strategies that are currently used for proactively detecting and preventing financial statement fraud. Multiple sources of information were used, including examining recent financial fraud scandals, interviews, documents, and past research. The target population was managers and auditors of publicly traded corporations. A purposive sampling procedure was used to select 23 participants, which provided rich data. The qualitative data was coded and analyzed using the concept of risk management, along with triangulation to ensure credibility. The key findings indicated that current practitioners are moving beyond the era of reactive measures born from the past fraud crises and are working toward improved financial statement quality and trust. The results of the study also indicated that future research should include proactive methods of preventing fraud. This study is socially significant because it could enhance the ability to trust financial statement reporting in the future and improve corporate reputations.

Institutional investors influence corporate payout and research and development (R&D) investment policies. Higher payouts are encouraged by institutional investors, especially in firms with high free cash flow and poor investment opportunities. They also positively influence stock repurchases, particularly in firms with high information asymmetry. The substitution of stock repurchases for dividends as a percentage of total payout is encouraged by institutional investors. Institutional owners persuade firm management to increase research and development (R&D) investment overall and specifically in firms with higher stock liquidity, higher information asymmetry, lower free cash flow, and better investment opportunities. Institutional investors decrease agency costs in payout and R&D investment policy decisions.

Includes bibliographical references (leaves 116-125).
This research was conducted to establish whether venture capital could reliably serve as a source of finance for SMEs given that there is a problem of access to finance in Namibia. This is important because SMEs in Namibia are generally in dire need of finance. Evidence therefore shows that venture capital as a source of finance serves as an ideal type of instrument for the development of SMEs internationally. The study assessed the importance of venture capital financing in the context of the SMEs in Namibia, specifically focusing on addressing the problem of lack of much needed capital and skills to the SME sector. The second objective was to assess whether venture capital financing can be effectively utilised to enhance managerial skills within SMEs in Namibia.

Bibliography: leaves 77-81.
The King Reports, as well as legislative developments culminating from these reports, are aimed at enhancing corporate governance standards in South Africa and aligning them with international best practice. Notwithstanding these measures, a number of significant failures in corporate governance rocked South African business during this period, severely denting the perception of the quality and standard of corporate governance. Given the importance of international investors' confidence, a continuous review of the South African corporate governance structure is imperative. This dissertation aims at performing a comparative and critical analysis of the corporate governance structures in South Africa. The objective is to seek alternative or improved corporate governance mechanisms that will enhance the current dispensation. For this purpose, various international corporate governance models are analysed and their monitoring mechanisms identified. The possibility of utilising some of these mechanisms to enhance corporate governance in South Africa is examined. The institutional environment in South Africa (I.e. the controlled shareholder environment, inactive and illiquid markets) prevents the market model mechanisms of the US and UK from playing a greater monitoring role. Further market model mechanisms aimed at promoting the independent monitoring of management have to a large extent been incorporated into the South African corporate governance framework. However, the ongoing failures of large listed and unlisted companies, including smaller banks in South Africa, that appear to indicate poor levels of, or ineffective, corporate governance, calls for the enforcement and acceptance of the monitoring guidelines set out in the King Reports. The German and Japanese bank governance model has a limited application in South Africa. The level of bank debt financing is generally lower than equity financing, thereby restricting banks' ability to become monitors through their debt control rights.

The purpose of this thesis is to review a number of academic perspectives on the practice of risk management in primarily widely-held (i.e. quoted) firms. In particular the currently dominant modern finance approach is criticised on the grounds that it offers an overly narrow view of corporate risk management behaviour. The core of the modern finance approach is that risk management is said to exist as a means to alleviate the adverse impact of various financial and capital market based agency and transactions costs that prevent the firm's stakeholders from achieving a Pareto efficient distribution of risk amongst themselves. However, in what follows it is argued that the presence of such agency or transactions costs do not provide a complete rationale for corporate risk management. Indeed fruitful research is already being done in the areas of organisational behaviour, sociology and psychology. Yet, what remains to be fully explored is the short run economic impact of risk management on a firm. In view of this a new economic framework for risk management is proposed based on the twin economic concepts of risk related "pure penalties" (which represent an unambiguous cost to a firm) and "technological nonlinearities" (which can affect the structure of a fine's revenue, cost and production functions). Both of these phenomena can have a significant effect on the expected profits of a firm. Moreover, it is demonstrated that there are numerous scenarios in which risk management may be used by an expected profit maximising firm.

Thesis: M.B.A., Massachusetts Institute of Technology, Sloan School of Management, 2017.
Cataloged from PDF version of thesis.
Includes bibliographical references (page 32).
This thesis focuses on how the financial planning and budgeting department of a corporation can improve its annual budget and financial forecasting processes. A series of interview were conducted to better assess the main issues and how they can be improved.
by Mariana De Castilho Lazaro.
M.B.A.

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This research investigates the factors that lead Latin American non-financial firms to manage risks using derivatives. The main focus is on currency risk management. With this purpose, this thesis is divided into an introduction and two main chapters, which have been written as stand-alone papers. The first paper describes the results of a survey on derivatives usage and risk management responded by the CFOs of 74 Brazilian non-financial firms listed at the São Paulo Stock Exchange (BOVESPA), and the main evidence found is: i) larger firms are more likely to use financial derivatives; ii) foreign exchange risk is the most managed with derivatives; iii) Brazilian managers are more concerned with legal and institutional aspects in using derivatives, such as the taxation and accounting treatment of these instruments, than with issues related to implementing and maintaining a risk management program using derivatives. The second paper studies the determinants of risk management with derivatives in four Latin American countries (Argentina, Brazil, Chile and Mexico). I investigate not only the decision of whether to use financial derivatives or not, but also the magnitude of risk management, measured by the notional value of outstanding derivatives contracts. This is the first study, to the best of my knowledge, to use derivatives holdings information in emerging markets. The use of a multi-country setting allows the analysis of institutional and economic factors, such as foreign currency indebtedness, the high volatility of exchange rates, the instability of political and institutional framework and the development of financial markets, which are issues of second-order importance in developed markets. The main contribution of the second paper is on the understanding of the relationship among currency derivatives usage, foreign debt and the sensitivity of operational earnings to currency fluctuations in Latin American countries. Unlikely previous findings for US firms, my evidence shows that derivatives held by Latin American firms are capable of producing cash flows comparable to financial expenses and investments, showing that derivatives are key instruments in their risk management strategies. It is also the first work to show strong and robust evidence that firms that benefit from local currency devaluation (e.g. exporters) have a natural currency hedge for foreign debt that allows them to bear higher levels of debt in foreign currency. This implies that firms under this revenue-cost structure require lower levels of hedging with derivatives. The findings also provide evidence that large firms are more likely to use derivatives, but the magnitude of derivatives holdings seems to be unrelated to the size of the firm, consistent with findings for US firms.
Este trabalho investiga quais são os fatores que levam empresas não financeiras da América Latina a gerenciar seus riscos usando derivativos. O foco principal é a gestão de risco cambial. Para tal, a pesquisa foi escrita dividindo-se em um capítulo introdutório, contendo a motivação da pesquisa e uma revisão da literatura sobre gestão de riscos financeiros, dois capítulos principais e uma conclusão. O segundo capítulo mostra os resultados de um questionário respondido pelos diretores financeiros de 74 empresas listadas na Bolsa de Valores de São Paulo (BOVESPA), em que se constatou que: i) empresas maiores são mais propensas a usar derivativos; ii) o risco cambial é o mais freqüentemente gerenciado com derivativos; iii) as questões relativas ao arcabouço jurídico-institucional, tais como a tributação sobre uso de derivativos e o tratamento contábil das operações de hedge preocupam mais os gestores financeiros do que as questões relacionadas à implementação, operacionalização e manutenção dos programas de hedge usando derivativos. O terceiro capítulo estuda os determinantes da gestão de risco nos quatro países mais importantes da América Latina (Argentina, Brasil, Chile e México). Investiga-se não apenas a decisão de utilizar derivativos, como uma variável binária, mas também a intensidade de utilização de derivativos, medida pelo valor nominal dos contratos em aberto. Trata-se do primeiro estudo a utilizar informações sobre as carteiras de derivativos de empresas de países emergentes. O uso de um conjunto de países permite que se compreenda a influência de fatores econômicos e institucionais, em especial o maior endividamento em moeda estrangeira, a maior volatilidade das taxas de câmbio e juros nos países latinoamericanos, a menor estabilidade político-institucional e o menor desenvolvimento dos mercados financeiros, questões que têm uma importância menor em mercados desenvolvidos. A contribuição principal deste trabalho está em auxiliar o entendimento da relação entre o uso de derivativos cambiais e a sensibilidade dos resultados operacionais às flutuações cambiais. Distintamente do que mostram trabalhos anteriores para empresas norte-americanas, a evidência obtida nesse trabalho mostra que as carteiras de derivativos de câmbio das empresas latinoamericanas são capazes de gerar fluxos de caixa comparáveis, em ordem de magnitude, às despesas financeiras e aos investimentos, mostrando que os derivativos são instrumentos chave nas estratégias de gestão de risco das empresas. Também se trata do primeiro trabalho a mostrar evidência forte e robusta que firmas cujos lucros operacionais se beneficiam da desvalorização da moeda local (por exemplo, exportadores), têm uma proteção natural contra o risco de dívida em moeda estrangeira, que permite a essa empresas captar mais dívida externa. Isso implica que empresas que possuem essa estrutura de receitas e custos precisam de menos derivativos para fazer hedge. Também se mostra que empresas maiores são mais propensas a usar derivativos, mas a magnitude das carteiras de derivativos está negativamente relacionada ao tamanho da empresa, o que é consistente com a teoria financeira e está em linha com os resultados obtidos para empresas dos Estados Unidos.

Corporate Communication Management (CCM) is an important concept within the communication and marketing discipline. The term corporate communication came to the attention of the general public more than 40 years ago, due to changes in global business environments. Although corporate communication received great attention from scholars and the business community, its complex concepts are still unclear. Furthermore, many scholars believe there are influences of corporate culture, ICT diffusion innovations and corporate leadership on corporate communication and its impact to organisational performance, yet there is a paucity of studies on the validation of this theoretical assumption. Therefore, the purpose of this study is to address this gap by providing an elevated understanding of the concept of CCM and its antecedents, and in consequence, focus on organisational performance from the managerial perspectives. This study employs a two tier mixed-method research process involving qualitative and quantitative approaches. The first tier commences with a semi-structured interview (with 12 respondents) to refine a conceptual framework developed based on existing literature. Then, content validity (with 10 expert opinions) and pilot test (with 35 respondents) follow, to develop a measurement scale with good validity and reliability. The second tier involves online survey data (with 223 respondents) and secondary data (from Thomson DataStream) to test the research hypotheses and proposed conceptual model. In this stage, structural equation modelling (SEM) is employed. Results indicate a very good fit to the data, with good convergent, discriminant and nomological validity and reliability stability. The findings of this research show that corporate culture, ICT diffusion innovation and corporate leadership are factors that influence CCM directly. While CCM correlates positively with financial performance, it has no effect on mission achievement. Corporate culture was found to have a positive relationship with mission achievement but negative relations with financial performance. Furthermore, ICT diffusion innovation demonstrates a positive association with mission achievement. Despite corporate leadership having a positive relationship with mission achievement, there was no effect on financial performance. Therefore, this study answered the antecedents and consequences of CCM, and they were found to be influential factors. In addition, the study demonstrates that managers rely on internal factors such as corporate culture, ICT diffusion innovation and corporate leadership to predict and assess CCM. The findings have implications for knowledge of theories and practices, and also contribute in the development of a model that explains the CCM functions and shows that functions have a definite positive impact on financial performance. Furthermore, the research adds an insight to a growing body of communication literature (primarily corporate communication) and makes recommendation for future research directions.

In practice, construction firms are in business to achieve profitability. Construction companies operate in a highly competitive business environment characterised by low profit margins and high failure rates. At times firms will seek to grow in an attempt to increase profitability. At other times, firms will be concerned with survival and avoiding failure. Often firms plagued by poor performance seek to take higher risks. This may lead especially where resources exist to increased diversification. Against this background, the research focuses on the twin areas of corporate financial performance and the effects of merger activity. Prior studies in economics and accounting provide evidence that financial statement analysis can be utilised by possible investors or strategic planners to aid in the future plans and direction of the firm or to classify economic events such as mergers or failures. The present study examines the financial performance of the UK construction industry and the Global construction industry, and investigates the financial characteristics of merging construction companies. This research examines the financial performance of UK firms in different sectors of the construction industry. This analysis involves the use of descriptive statistics, which provides a valuable aid in the visual presentation of the range of the possible outcomes. In addition a probabilistic analysis of the distribution of profitability has been undertaken. This involves the use of inferential statistics which concentrates on the role of significance testing. The profitability performance of the plant hire sector was found to exceed that of contracting and materials sector. An examination of the impact of the national environment on international competitive performance and an assessment and comparison of the performance of global construction is also provided in the study. The research also investigates the financial profile of UX failed and solvent firms. The use of statistical models and accounting ratios in an effort to predict company failure for up to five years is examined. The results for the univariate analysis indicate that failing construction firms during the 1996-2001 period have low profitability and are highly geared. The testing of previous statistical failure prediction models provide little evidence of compatibility to the construction industry. The analysis on mergers and acquisition investigates the performance of construction companies involved in the acquisition process and examines the motives behind the merger process. Analysis of the relation between measures of costs and firm size in over 100 UK construction companies indicates the usefulness of scale economies. However, the evidence suggests that beyond a certain size the cost benefits appear to become exhausted. Large companies have to re-examine scale to ensure that they are employing it to their company's greater advantage. Abnormal share returns are also examined throughout a period surrounding the announcement of both successful and unsuccessful acquisition and merger bids. The overall results indicate that mergers in the construction industry create wealth for shareholders. The evidence shows significant increases in the performance of the target firms' shareholders over a 40 day event window surrounding the announcement. The results also show that bidding firms' experience no significant abnormal returns in a short period surrounding the announcement date.

Includes bibliography.
The study analyses the incentives and mechanisms of failing firms on the Johannesburg Stock Exchange that restructure their claims following a decline in performance and value. The study also analyses patterns for restructuring of failing firms. The sample contains firms that were delisted between 1986 and 1996. Firms that were delisted and re-instated number 28 and constitute the sample for firms that restructured successfully their claims. Firms that were delisted on the JSE following an unsuccessful debt restructuring number 32 and constitute the sample for unsuccessful firms. The study finds that firms that restructured successfully on the JSE have more intangible assets, less bank debt and few creditors. This finding means that South African corporate restructuring activities relies more on assets characteristics rather than financial characteristics.

Thesis advisor: Pierluigi Balduzzi
Thesis advisor: Jonathan Reuter
In the first essay of this dissertation, I study the impact of fund redemptions and resulting sell-offs on corporate bond yields. To control for unobserved changes in fundamentals, I study within-issuer variation of yield changes, resulting from differential exposure to redemptions and sell-offs. In contrast to previous findings for equity funds, I find no evidence indicating that bond funds destabilize the corporate bond market by moving prices beyond fundamental values. I attribute this finding to bond fund management. Although I find that investors demonstrate a bank-run like behavior, which is a potential source of destabilization, bond fund managers hold a significant level of liquid assets, allowing them to manage redemptions without excessively liquidating corporate bonds. Second essay of this dissertation looks at corporate bond Exchange Traded Funds (ETFs) which are a new form of financial innovation. Since these investment vehicles are relatively new, little is known about their risks. In this paper, we study an event in the summer 2013, knows as the Taper Tantrum, when bond ETFs and mutual funds experienced massive unexpected outflows due to speculations about interest rate hikes. We find that ETF outflows during the Taper Tantrum lead to a significant increase in exposed corporate bond yields. The increase in yields lasts for seven months, which indicates a temporary fire sale effect. In contrast, we find no fire sale effect resulting from mutual fund outflows. We attribute this contrasting finding between the two vehicles to differences in portfolio construction and investor sensitivities. Finally, we study arbitrage opportunities, created by ETF shares mispricing, and their impact on bond yields. Third essay of this dissertation is about liquidity in the corporate bond market. In market distress, corporate bond investors tend to sell liquid assets and hold onto illiquid ones, a phenomenon which we call flight to illiquidity. We study the impact of flight to illiquidity on corporate bond prices/yields in cross-section as well as corporate bond returns in time-series. First, we show that liquidity price premium disappears in market distress, meaning that liquid bonds are not more expensive than illiquid bonds in distress times. Second, we show that illiquiduity return premium which exists during normal times, not only does not change sign or disappears, but also widens in market distress. In other words, liquid bonds deliver a lower return both on average and during market distress. This pattern is limited to investment grade corporate bonds. Our findings suggest that keeping the credit risk fixed, liquid bonds do not provide safety during the time it is needed the most
Thesis (PhD) — Boston College, 2016
Submitted to: Boston College. Carroll School of Management
Discipline: Finance

Credit Default Swaps (CDSs) play an important role in the financial markets. The introduction of CDSs has impacts on the bond market, and the financial characteristics and creditworthiness of the underlying reference entities. When financing is not frictionless, the investment policies of firms are related to their financial conditions. However, whether or how the introduction of CDS will directly affect the investment policy of the firm has not been examined empirically in the literature. To shed light on this issue, my study investigates the relation between credit default swaps trading and corporate investment policy for the listed firms in the United States using the data of CDS reference entities from 2002 to 2014. I find that the introduction of CDSs is negatively related to the investment decisions of reference entities. Furthermore, the relation is more significant when the reference entities have financial constraints and depend more on external credit supply. Overall, when a listed firm becomes a CDS reference entity, the probability of its underinvestment will increase. The study contributes not only to the growing literature on the relationship between CDS introduction and the reference firm, but also to the literature on corporate investment policy making.

Research in the field of impression management has presented evidence that suggests as a company's performance declines, the readability of its financial reports also declines in order to confound the user. In an attempt to determine whether similar impression management strategies are implemented amongst South African listed public companies, a mixed-effects linear regression model was applied to analyse data over the period 2016- 2018. Performance was regressed to the report readability measures over time, where readability was divided into the aspects of length (through the word count) and complexity (as quantified by the Gunning Fog Index). The findings indicate that as the financial performance of a South African company declines, the length of all its reports increases: including the annual financial statements, Integrated Report and the annual results market announcement. However, there is limited evidence of a relationship between complexity and performance. Therefore, when South African companies perform poorly, despite producing lengthier reports, the complexity therein is not impacted. These results thus caution users when faced with reports that are unusually lengthy in nature, because this trait could signal poor performance. Users are advised accordingly to critically analyse excessively lengthy reports in order to separate decision-useful information from the impression management related content elements. Lastly, this research contributes to the foundation of impression management research in the context of the South African capital market and puts forward several suggestions for important future research.

The increase of interest in financial culture following the financial crisis, which started in 2008, as well as the proliferation of financial data, have sparked an emerging research agenda into the role of financial news media. Moreover, financial news media is an important research topic in finance because information released through the media has a wider audience than other information intermediating systems in the financial market. This thesis defines the financial journalist as a significant actor in the intermediation of financial information. It also contributes to understanding how the relationships between intermediaries in firms’ information environments affect financial markets, and in particular whether claims for professionalization can be made by financial journalists and public relations practitioners for their interrelating activities. The further contribution of the thesis is its integration of an interdisciplinary and mixed methods approach. The thesis investigates the research problem through three independent empirical studies that are linked to the research aim of the thesis, and each other, but can be read independently. The first study uses the quantitative, event-study method and tests how 100 small-cap US stocks are affected by different types of carefully-selected information, namely analysts’ recommendations, corporate filings, news media, public relations wires and stock tips received over five years from 1 January 2006 to 31 December 2010. Its first contribution is a problematisation of firms’ information environments from an information intermediation perspective. It therefore finds that news media has the largest negative and absolute effect on stock prices, trading volumes and volatility. The intuitions for this are news media’s wide dissemination; its attraction to reporting bad news, as well as to interpreting events negatively. Further, its independence from firms and role in corporate governance are thought to make bad news especially surprising. The second and third studies form two halves of a qualitative symmetrical study that tests for the intuitions and findings of the quantitative study. They do so through structured and semi-structured interviews with experienced journalists and corporate public relations practitioners about their own perceptions of their respective self-constitutions and ethics; their relationships to each other; their understandings about how their own work and other information intermediaries’ work in firms’ information environments affect financial information; and to determine if and how these factors affect the manner in which they go about doing work. Study 2 considers journalists as actors in the financial market by problematizing them as information intermediaries who disseminate financial information and contribute to corporate governance. It finds they have a professional ethic biased towards reporting bad news and contributes to understanding the professional constitutions and knowledge construction activities of journalists through demonstrating how their beliefs, motivation and self-awareness influence reporting choices and actions. Their level of expertise and credibility in these activities is linked to the relative performativity of news stories. Study 3 studies the expansion of public relations’ reputation risk management activities in relation to journalists and evaluates the industry’s claim for professionalism using Gieryn’s (1983) analytical framework of boundary-work. It considers public relations practitioners as actors in financial markets in the context of globalised, high-speed financial markets and increased demands for corporate social responsibility. It finds that public relations is increasing its monopoly over the dissemination and intermediation of financial information but cannot yet make a claim for professional jurisdiction over these activities.

Diese Dissertation besteht aus drei Essays, welche empirisch den Einfluss von Manager-Optimismus auf verschiedene unternehmenspolitische Entscheidungen untersuchen. Der Ausdruck Manager-Optimismus wird hierbei verwendet um Agenten (Manager) zu beschreiben, die im Interesse der Prinzipale (Aktionäre) zu handeln glauben, aber tatsächlich ins Positive verzerrte Vorstellungen über ihre eigenen Fähigkeiten und somit über die zukünftige Performance ihrer Firmen haben. Das erste Papier untersucht den Einfluss von Manager-Optimismus auf Ausstattungsmerkmale von Fremdkapitalverträgen. Konsistent mit nach oben verzerrten Erwartungen über die zukünftigen Cash Flows ihrer Firmen zeigt sich, dass Firmen mit übermäßig optimistischen Managern häufiger Performance abhängige Verträge nutzen und zugleich eine schlechtere Performance nach Aufnahme des Fremdkapitals aufweisen als solche mit rationalen Managern. Der zweite Artikel untersucht unternehmerisches Risikomanagement. Es stellt sich heraus, dass Firmen mit optimistischen Managern signifikant weniger wahrscheinlich Finanzderivate zur Absicherung ihrer Fremdwährungsrisiken nutzen als solche mit rationalen Managern. Dieses Verhalten ist mit einer Unterschätzung von Insolvenzkosten bzw. Kosten einer finanziellen Notlage konsistent. Der dritte Teil der Arbeit untersucht empirisch das Verhältnis zwischen Manager-Optimismus und der Nutzung von großen Abschreibungen im Rahmen von CEO-Wechseln. Nach dem Abgang von CEOs kann man häufig beobachten, dass deren Nachfolger ein so genanntes big bath accounting durchführen. Hierbei werden durch Abschreibungen Verluste dem Vorgänger zugeschrieben und Verdienste für zukünftige Performanceverbesserungen für sich beansprucht. In Übereinstimmung mit den verzerrten Erwartungen über zukünftige Cash Flows ihrer Firmen zeigt sich, dass Unternehmen, welche einen optimistischen Manager einstellen, weniger wahrscheinlich ein solches earnings bath durchführen, als Firmen, die rationale Manager einstellen.
This thesis consists of three essays that empirically investigate to what extent managerial optimism affects corporate financial policy decisions. The term managerial optimism is used to describe agents (managers), who believe to act in the principals’ (shareholders’) best interest but in fact have upwardly biased views about their own abilities and consequently about the performance of their firms. The first paper investigates the impact of managerial optimism on debt contract design. Consistent with their upwardly biased view on their firm’s future cash flow, we find that firms with overly optimistic managers are more likely to choose performance sensitive debt (PSD) contracts and show worse post issue performance than firms with rational managers. The second paper analyzes corporate risk management. We find that firms with overly optimistic managers are significantly less likely to use financial derivatives to hedge their currency exposures than those with rational managers. This behavior is consistent with an underestimation of bankruptcy or financial distress costs by overly optimistic managers. The third paper empirically tests the relationship between managerial optimism and the use of large write-offs following CEO turnover. Subsequent to CEO turnover, it is often observed that incoming CEOs engage in this so called big bath accounting. Losses incurred during the big bath are attributed to the predecessors and the incoming CEOs take credit for future performance improvements. Consistent with their upwardly biased expectations concerning future firm cash flow, we find that firms hiring optimistic managers are less likely to experience an earnings bath in the year of the turnover than those hiring their rational counterparts.

This thesis is composed of three stand-alone essays interlinked within the context of banking markets in sub-Saharan Africa. This research is motivated by the lack of comparative research on North-South and South-South foreign direct investment (FDI), especially on the service sector and on the African context, despite the rapid expansion of multinationals from developing and emerging countries over the last two decades. Theoretically, this thesis builds on strategy, corporate finance and organizational economics theories. The first chapter compares the financial performance of the foreign affiliates of global banks to that of regional African banks in sub-Saharan Africa over a 10-year period. The results suggest that affiliates of regional African banks are significantly less profitable (lower return on equity and higher cost income ratio) than those of global banks. Furthermore, the performance differentials are not strongly related to the quality and sectoral allocation of banks’ loan portfolio but to differences in their access to funding. The second chapter examines the benefits and drawbacks of being part of a large banking group by analyzing the flows of internal capital between foreign affiliates located in an emerging economy, South Africa, and their global headquarters. It provides evidence for a support motive to internal funding, as foreign affiliates receive on average more internal group funding when their solvency ratio declines. However, using the event of the East Asian Crisis, I show that foreign affiliates’ balance sheet are not immune to “reversal of fortune” when other members of their banking group need large amounts of internal capital to cushion capital losses, leading to abrupt reallocation of internal capital. Finally, using an instrument variable technique I find a positive impact of the volume of internal funding received by a foreign affiliate on its credit supply in the mortgage market. In the third chapter I examine how environmental and firm factors influence the organizational structure of multinational banks relying on survey data on commercial banks located in 14 sub-Saharan African countries. I find evidence of a positive and significant association between several indicators of environmental distance between host and home countries (institutional, economic and cultural distance) and centralization of operational processes inside multinationals. In addition, I find that lower quantity of “hard” information available on borrowers in the host markets and higher reliance on qualitative or “soft” information by bank managers is negatively and significantly associated with centralization.

Business leaders lack consistent information to make and support strategic budgetary decisions while supporting corporate social responsibility initiatives. Grounded in stakeholder and contract theory, this correlation study examined the relationship between Fortune reputation scores and return on asset, return on equity, and earnings per share, while controlling for total assets. Archival data were collected from 25 corporate websites of U.S. banks included in Fortune Most Admired Companies listing from 2011 to 2013. For 2011 there was a moderate positive partial correlation between Fortune reputation index (FRI) and return on equity (ROE) while controlling for total assets, r = .47, p < .05, with higher levels of FRI associated with higher levels of ROE. For 2012 there was a moderate positive partial correlation between FRI and ROE while controlling for total assets, r = .48, p < .05, with higher levels of FRI associated with higher levels of ROE. Correspondingly, there was a moderate positive partial correlation between FRI and EPS, r = .56, p < 0.5 with higher levels of FRI associated with higher levels of ROE in 2012. For 2013, there was also a moderate positive, but not statistically significant, partial correlation between FRI and EPS, r = .41, p > .05, with higher levels of FRI associated with higher levels of EPS. The implications for positive social change include greater support for socially responsible business strategies to promote sustainability and more business leaders promoting the provision of social benefits for stakeholders.

That companies need to respond to the issue of climate change is no longer in question and with multiple carbon management activity options to choose from, companies need to select the most appropriate carbon management strategy to meet the challenges of a carbon constrained future. Because of South Africa’s vulnerability to the impacts of climate change as a developing country and because of business’ pivotal role in addressing this urgent issue, it is important to characterise the corporate responses to climate change. The contextual factors that influence carbon management strategy decisions need to be understood so that appropriate policy decisions are taken to encourage innovation related to climate change opportunities.To this end, secondary data in the form of qualitative responses from 70 large South African listed companies to the Carbon Disclosure Project 2011 questionnaire were analysed for this study during September and October 2012. The detailed responses were first mined using a text-mining statistical program to identify the five carbon management activities currently practised by the companies. A cluster analysis of these activities revealed four general response strategies to climate change and carbon emission reduction pressures.The companies were found to have a strong focus on saving energy with less focus on higher-order sustainability activities. While market capitalisation, turnover, sector and carbon commitment were shown to correlate and indeed predict the carbon management strategy chosen by companies, no significant link was found between carbon management strategy and corporate financial performance.
Dissertation (MBA)--University of Pretoria, 2012.
Gordon Institute of Business Science (GIBS)
unrestricted

Many Nigerian firms have faced working capital management (WCM) inconsistencies, which have remained a source of tremendous concern in the face of high competition. In this study, the research problem explored was how inefficient working capital policies are still negatively affecting shareholders' wealth several years after the economic crisis, constraining sustainable development. The purpose of this quantitative research study was to examine how corporate governance has affected WCM within Nigerian organizations. The research question was about how corporate governance practices expand WCM efficiency. A random sample of 89 Nigerian organizations was used, and publicly available ethical ratings and financial information data on the companies involved were obtained. This quantitative study utilized a multiple regression methodology to determine the extent to which CEO duality, CEO tenure, board size (BS), and an audit committee (AC) can predict WCM performance. The findings specifically determined that board size and audit committee size were significantly related to WCM, while CEO tenure and CEO duality were not related to WCM. The results were consistent with previous studies suggesting that the impact of corporate governance in Nigerian organizations relates to WCM. The results of this study may help Nigerian organizations adopt and operate an appropriate corporate governance structure that will enhance their organizational effectiveness, aid business managers in allocating resources, and allow them to continue their corporate social responsibility missions of providing services to their communities and transforming society.

The first chapter evaluates the zero-leverage effect on firms' financial constraints. Moreover, using investment- and cash-to-cash-flow sensitivities as financial constraint indicators, the results suggest that unleveraged firms are expected to face lower constraints relative to leveraged firms. Lastly, the results indicate that the zero-leverage effect on firms’ financial constraints is more likely stronger for smaller firms, zero-dividend firms, firms with lower proportions of tangible assets, and growth firms. The second chapter develops a new quantitative measure that reflects the extent to which a firm complies to Shariah relative to the other firms located in a certain region at a certain time. This measure can be customized to be consistent with each investor’s objectives, constraints, and beliefs. We argue that the use of this measure is preferable to the existing use of ratio thresholds for the following two reasons. First, it is more Shariah-appropriate because it provides the Shariah-compliant investor with a clear understanding of the relative compliance status of each firm he wishes to invest in. Second, it can be incorporated into any portfolio optimization model to create a balance between improving Shariah compliance and not compromising investment returns.

The purpose of this thesis is to investigate the management of one of Britain's most important multination companies, J & P Coats Ltd., for the time period 1890-1960, a topic which has not hitherto fore been examined in detail. In particular, the thesis will look at the firm's financial and accounting systems, insofar as the surviving records permit, going on to examine the system of committees by means of which the enterprise was controlled and directed over the time concerned. The thesis reveals that the financial system run by the company reflects the tight control exercised by the committee system, and indeed, was indispensable to it. As a theoretical focus, the study compares what is found with the writings of Alfred D. Chandler Jnr., who held that, in general, British family capital and management of businesses inhibited their growth and development as compared with firms in the USA, in particular. The thesis concludes that Coats did not fit this interpretation, and was highly successful in spite of departing from the M-Form organisational structure regarded by Chandler as the key to the success of large American enterprises. The thesis also highlights some errors made by Chandler in his discussion of J & P Coats. Chapter One deals with the sources used for the study as well as the theoretical focus, and provides a literature review. Chapter Two gives a short prehistory of J & P Coats up to 1890. Chapter Three sets the scene for the main part of the study by providing, for the first time, an outline business history of the firm between 1890 and 1960. Accounting systems and financial management arrangements are considered in Chapter Four, followed in Chapter Five by a detailed study of the management committees used to run J & P Coats. Chapter Six contains a final discussion and conclusions. It is clear from the above that the thesis makes a major contribution to knowledge in several ways. It provides the first in-depth study of the management of one of Britain's largest and most successful multinational companies, clarifying the relationships between organisational structure and financial arrangements. At the same time it provides evidence which further destabilises the theories of Chandler, concluding that Coats' approach to management, although in some ways unique, was appropriate to its aims.

This paper examines the value effect corporate diversification on firms listed on the JSE Exchange. The value gain or loss for the diversified firms is measured using Berger and Ofek's (1995) model that estimates the value of diversified companies' segments as though they were independent companies. The result indicates corporate diversification in South Africa is value enhancing. Evidence shows that sample of diversified companies are traded, on average, 39-57 (Excess Value 0.33 to 0.45) percent above the industry averages. The value gain is higher in related-diversification than unrelated ones. A similar assessment of a sample of 57 focused companies showed a much lower Excess Value (EV). The EV for diversified companies (0.33 - 0.45) is higher than the EV for focused companies (0.00 - 0.19) suggesting that diversified companies are traded at premium as compared to focused companies. Further analysis of the result shows that the value gain is higher in the medium sized sample companies as compared to the bigger companies. Regression of the EV in relation to firms' characteristics (number of segments per company, capital expenditure, and profitability) showed no significant relationship. To explain the possible sources for higher premium shown in diversified companies, analysis of the companies leverage and tax rate shows that diversified companies have, on average 13% lower debt-to-assets ratio and pay 4.13% lower tax rate than focused companies. It suggests that higher leverage, which gives companies greater tax shield, is not one the sources for the observed higher premium. It, however, indicates that a lower tax derived by combining businesses with imperfectly correlated cash flows can be one of the contributing factors for the value gain. A comparison of Price-to-Earning and Price-to-Book value ratios for the sample diversified and focused companies suggests, in contradiction with the above results, that focused companies perform better than diversified companies.

This paper aims to investigate the change in corporate debt levels in South Africa from 1994 to 2016 as well as analyse certain factors that play a role in the decision making of corporates when it comes to the all important decision of capital structure. The study uses data from large capitalisation, retail and food producing firms listed on the Johannesburg Stock Exchange. Four different leverage measures are used to determine the change in capital structure over the period under review as well as six of the most common determinants of capital structure used in literature. The analysis shows that South African corporates have drastically increased their appetite for debt funding compared to equity funding over the last two decades. Large capitalisation stocks reflected the largest increase in the use of debt, whilst food producers showed the smallest yet still significant increase in debt. Analysis has also shown that firms have changed their maturity profile of their debt significantly since the 2008 financial crises. Results from the analysis on determinants varied with some determinants showing statistical significance.

Corporate Social Responsibility (CSR) and Corporate Social Responsibility Disclosure (CSRD) have received much attention in the literature. However, a review of previous studies has revealed that the current discussions on CSR and CSRD do not go beyond the disciplinary perspective (e. g. management, accounting, and ethics) and ignore the possibility of conceptualisation of CSR and CSRD based on other values, such as religion. Many of these studies have proposed different theories to explain why corporations disclose or do not disclose social responsibility information. The various CSRD theories exclude religion as a foundation in explaining why organisations should disclose social responsibility information, and also in making assessment of the performance of organisations in terms of fulfilling their obligation to God. These theories have been developed mainly in the context of the liberal market, and may not offer full justification of CSR and CSRD practices in a dissimilar socio-culture, such as the case of Islamic financial institutions (IFIs). While values and principles that have been central to Islamic teaching and philosophy are directly related to the notion of CSR, there are some empirical studies that have attempted to investigate the relationships between those Values and CSR and CSRD. The mainstream of existing studies has tended to examine the gap between the expectation of social disclosure and the actual disclosure practice in Islamic business organisations such as IFIs. In order to understand the practice of CSR and CSRD by IFIs, it is also important to investigate the perception of the managers who are in charge of producing corporate reports, and to understand the reasons and rationales behind disclosing or non-disclosing social responsibility information. In addition, there is a lack of comprehensive studies comparing the practice of CSRD in IFIs with its conventional counterparts, as such a comparison offers an insight into the nature of CSRD in IFIs, which are influenced by the value of Islam. To achieve this objective, this study conducted a mix of qualitative and quantitative research. On the quantitative part, 42 financial institutions, divided equally between IFIs and conventional financial institutions (CFls), were studied. The content analysis method was utilised to compare the extent and level of CSRD in the annual reports between IFIs and CFIs. On the qualitative research side, interviews were utilised to seek the perspectives, attitudes and opinions of IFIs'managers on CSR and CSRD. This study presents evidence that Islamic values have driven the business practice of IFIs and consequently influenced CSR and CSRD. The principle of accountability to Almighty Allah was found as the prominent driver for CSR and CSRD in IFIs. This accountability is based on the relationship between individuals and businesses, and Almighty Allah. Accountability in this context means not only a duty to report performance, but performing ethically in the first place. This notion of accountability from an Islamic perspective provides a different dimension to the concept of CSR and CSRD, which was not identified in the existing framework and literature. This study has therefore contributed to our understanding and knowledge of CSR, and CSRD in particular, in the business environment of IFIs.

Thesis: S.M. in Management Studies, Massachusetts Institute of Technology, Sloan School of Management, 2014.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 89-90).
This paper is divided into three sections that address the various elements of understanding, predicting and analyzing corporate failure and bankruptcy. Part I covers the definitions of corporate failure, explains the bankruptcy process and then classifies various potential causes of failure into broad categories. The causes are bifurcated into company-specific versus external factors. The company-specific factors include an in depth discussion and analysis of business causes versus financial causes, as well as the interrelation between the two. The most important factors, such as financial and operating leverage, are explored in great detail to gain a better understanding of their implications and impact on corporate failure. Part II covers various approaches for analyzing corporate risk and predicting corporate failure. It first details the credit analysis process from the perspective of lenders and credit agencies as a method for credit evaluation and prediction of default. Then, it provides an in depth explanation of financial ratio analysis as a prediction method and provides an overview of the main statistical prediction models. It concludes with a discussion of the implications of the model findings with respect to the causes detailed in Part I. Lastly, Part III describes the outcome of the study performed to analyze the causes of failure as described in Part I by using a combination of the methods highlighted in Part II. The purpose of the study is to identify the sequence and magnitude of relative ratio deterioration in failed firms in order to establish the relative frequency of the various categories of causes of failure. Various ratios and metrics were used as proxies for relative liquidity complications, profitability issues, business problems, and leverage concerns. The impact of macroeconomic events is also evaluated by isolating the impact of the 2008-2009 recession on the relative ratio measures.
by Konstantin A. Danilov.
S.M. in Management Studies

Key drivers for care coordination programs may include reducing inflated health care cost and improving the quality of care for high-risk populations. However, health care leaders lack methods to support financial investment in care coordination programs. The purpose of this single case study was to explore the strategies that health care leaders use to improve corporate financial investment in care coordination programs that include the triple aim of reducing cost, improving population health, and increasing patient satisfaction. The triple aim model provided the conceptual framework for the study in which 6 health care leaders from Southern California with experience garnering financial support for care coordination programs were interviewed. Data from semistructured interviews were analyzed and compared with company documents to establish methodological triangulation. The 4 themes that emerged included reflecting a reduction in health care cost; focusing on high-need, high-cost populations; partnering with primary care practices; and providing patient-centered care. The implications for positive social change included the potential to provide health care leaders the tools needed to garner financial investment in care coordination programs that improve population health and influence the health of high-risk populations.

Tese de doutoramento em Gestão, sob a orientação de Mário António Gomes Augusto, apresentada à Faculdade de Economia da Universidade de Coimbra.
Risk management theories suggest that the use of risk management instruments solely with hedging purposes can enhance firm value through its effect on taxes, financial distress costs, costly external financing, as well as on agency costs. Studies linked to the standard corporate risk management approach have investigated primarily the effect on shareholder value focused on the determinants of hedging and whether the firm’s hedging behaviour fits one theory or another. Recently, another strand of research has attempted to examine the direct impact of corporate risk management on firm value, looking for the value premium inherent to hedging activities. Moreover, recent investigation emphasizes the role of risk management in controlling the agency problem, resulting from the separation of ownership and control, and forges a link between corporate hedging and governance structures. This dissertation is a compilation of three empirical studies that attend to a series of emergent questions regarding corporate risk management and their relation with corporate governance. We accomplish this by generating a firm-level governance index and by conducting an extensive analysis of the general risk management undertaken in a sample of 567 non-financial firms in the four countries with stocks listed in Euronext. In the first study we investigate whether firms use risk management instruments for hedging or for speculative purposes. Specifically, to identify a firm’s hedging or speculative behaviour, we firstly measure the firm’s exposure to financial risks and, later, investigate the effect of risk management instruments’ usage in the firm’s exposures. In addition, we analyse the premise that the hedging decision may be driven by unobserved elements that are indeed associated with financial price exposure. Building on the results of the first study, we certify the purpose of risk management usage and proceed to the second study, where we examine if a firm’s hedging strategy implementation is driven by firm governance structures and by other firm characteristics. In particular, we investigate the idea that a firm’s hedging decision is probably undertaken in simultaneity with governance and other financial decisions made by the firm. However, the implementation of a hedging strategy in a company can represent significant costs, despite the potential benefits identified. Explicitly, the ultimate argument for engaging in hedging activities is the one of value creation. Therefore, the third study explores if the use of hedging instruments is consistent with a higher valuation for firms that experience strong firmlevel governance structures. Also, in this analysis we seek to control for the existence of possible interrelationships between firm value, hedging behaviour and firm-level corporate governance structures. Our main conclusions are then threefold: (1) we confirm that the firms in our sample display higher percentages of financial risk in the three categories (exchange rate, interest rate and commodity price risk) of risks analysed. Then, we find that the use of hedging instruments significantly reduces firm’s exposure to financial risk. In addition, these results confirm that self-selection is an important issue; (2) we find that strongly governed firms use risk management instruments for hedging purposes. We also confirm the presence of endogeneity in the relationship between firm hedging, corporate governance and investment decisions. In addition, we find evidence showing a link between firm size and the decision to hedge, and finally, (3) after accounting for the possible endogeneity between firm value and hedging, and firm-level governance structures, we find statistical evidence that firms that hedge and are strongly governed have a higher valuation (using Tobin’s Q ratio) than firms that do not hedge and are weakly governed. We also find evidence that firms that are more profitable, that are financially constrained, and that have more investment opportunities are more likely to be associated with a significant value premium. Ultimately, we confirm that firm-level corporate governance has a significant and positive impact on firm value through its impact on firm hedging policy. Our main contributions are as follows. Firstly, we make use of a hedging variable that accounts for the use of either external (derivatives) and/or internal hedging instruments, which is unusual in the European setting. Secondly, our contribution is also methodological: (1) we expand exposure-based literature by addressing the endogeneity of the hedging decision through a treatment effect methodology; (2) we bring new evidence to the hedging-based literature on the use of instrumental variables probit estimator, and (3) we add to the hedging-value-related literature by explicitly addressing the endogeneity between firm value, hedging and corporate governance choices for the first time. Finally, we add to corporate governance literature by revealing evidence in a specific way by which governance can enhance firm value.
As teorias de gestão do risco sugerem que a utilização de instrumentos de gestão do risco, exclusivamente com o propósito de cobertura, pode promover o aumento do valor da empresa por via do seu efeito ao nível da componente fiscal, custos de insolvência financeira, custos do financiamento externo, assim como nos custos de agência. Numa perspetiva tradicional, os estudos empíricos focalizaram-se na validação, perante as proposições teóricas estabelecidas, das características financeiras das empresas suscetíveis de adotar mecanismos de proteção face ao risco. Uma outra perspetiva de análise, contemporânea à perspetiva dita “tradicional”, promove a investigação de forma direta dos efeitos da gestão do risco no valor da empresa, ou seja, quantifica o aumento de valor inerente às atividades de cobertura. Alguns estudos recentes enfatizam o papel da gestão do risco como forma de controlar os custos de agência, sugerindo a existência de uma relação entre os mecanismos de governo das sociedades e a gestão do risco. Esta dissertação resulta da compilação de três estudos empíricos que analisam questões emergentes relacionadas com o valor da gestão do risco financeiro nas empresas, assim como a sua associação com os mecanismos de governo das sociedades. Para o efeito, foi efetuada uma extensa análise às atividades de gestão do risco e foi construído um índice representativo da qualidade de governo para uma amostra de 567 empresas não financeiras cotadas na Euronext. Ao nível do primeiro estudo investiga-se se as empresas que utilizam instrumentos de gestão do risco os utilizam de facto para a cobertura de exposições existentes, ou se os utilizam para fins de especulação. De forma a identificar o procedimento das empresas em relação a esta questão, estima-se o nível de exposição ao risco de cada empresa da nossa amostra e, posteriormente, verifica-se o efeito da utilização de instrumentos de cobertura no nível da exposição ao risco. Considera-se na análise a possibilidade de existência de causalidade reciproca entre a utilização de instrumentos de gestão do risco e o nível de exposição ao mesmo. Em face dos resultados obtidos quanto ao propósito das empresas na utilização de instrumentos de gestão do risco, prossegue-se para o segundo estudo, onde o principal objetivo é a análise das características das empresas que promovem a utilização de instrumentos de cobertura, nomeadamente no que diz respeito ao papel das estruturas de governo das sociedades. Nesta análise considera-se a hipótese de que existem variáveis independentes que são endógenas ao modelo. No entanto, apesar dos benefícios atribuídos à gestão do risco os custos inerentes podem ser significativos, pelo que é necessário investigar se, de facto, as atividades de gestão do risco aumentam o valor da empresa. Assim, o terceiro estudo empírico visa analisar se a utilização de instrumentos de gestão do risco é compatível com o aumento do valor da empresa, nomeadamente quanto esta tem associada uma boa qualidade de governo das sociedades. Também nesta análise se considera a existência de problemas de endogeneidade inerente à relação entre o valor da empresa e as decisões sobre a gestão do risco e sobre o governo das sociedades. As principais conclusões deste trabalho podem ser sintetizadas da seguinte forma: (1) verificou-se que as empresas da amostra exibem níveis de exposição ao risco significativos em relação aos três tipos de risco em análise (risco de taxa de câmbio, de taxa de juro e de variação do preço das mercadorias) e que a utilização de instrumentos de gestão do risco reduz significativamente o nível de exposição ao risco da empresa. Foram igualmente validados os indícios de existência de causalidade reciproca; (2) concluiu-se que empresas com uma boa qualidade de governo utilizam os instrumentos de gestão do risco com propósitos de cobertura e que a dimensão da empresa influencia significativamente a tomada de decisões em matéria de gestão do risco, sendo igualmente validada a hipótese de existência de endogeneidade na relação entre decisão de cobertura de risco, estruturas de governo e nível de investimento; finalmente, (3) considerando a existência de endogeneidade na relação entre o valor da empresa e as decisões sobre cobertura de risco e sobre governo das sociedades, conclui-se que as empresas que promovem a cobertura de risco, com uma boa qualidade de governo, com elevadas rentabilidades e mais oportunidades de investimento, mas sujeitas a constrangimentos financeiros, têm maior probabilidade de obter avaliações significativamente mais elevadas. Verifica-se, ainda, que as estruturas de governo implementadas na empresa promovem o aumento de valor da empresa por via do efeito na estratégia de gestão do risco. Apresentam-se de seguida as principais contribuições deste estudo. Primeiro, foi utilizada uma variável representativa das atividades de gestão do risco que compreende a utilização de instrumentos de cobertura externos (derivados) e/ou internos, situação esta que não é comum no espaço Europeu. Segundo, verificam-se contribuições também em termos metodológicos, nomeadamente: (1) quanto à literatura intrínseca à exposição ao risco, promove-se a aplicação de um modelo que considera o tratamento dos efeitos da endogeneidade das decisões de cobertura (treatment effect model); (2) quanto à literatura que contextualiza a gestão do risco financeiro, apresentámos novas evidências mediante a aplicação do método das variáveis instrumentais ao modelo probit; finalmente, (3) analisámos de forma explícita a endogeneidade inerente à relação entre o valor da empresa e as decisões sobre a gestão do risco e governo das sociedades. Finalmente, demonstrámos o papel da gestão do risco na relação entre governo das sociedades e valor da empresa, o que se traduz num contributo face ao estado da arte relativo ao governo das sociedades.

Thesis (PhD)-- Stellenbosch University, 2014.
ENGLISH ABSTRACT: Mainstream investors are mostly interested in how they can benefit financially from a specific investment. Although this is the case, an increasing number of so-called responsible investors are also beginning to integrate environmental, social and corporate governance (ESG) aspects into their investment analysis and ownership practices. Corporate governance compliance is often the first level of ESG interest for these investors. Previous researchers considered the relationship between corporate governance and various financial performance measures, but reported inconclusive evidence on the nature of the relationship. Even though the three King Reports provide a well-developed framework for corporate governance compliance in South Africa, no comprehensive academic study has previously been conducted on the above-mentioned relationship in the South African context. The primary objective of the current study was therefore to investigate the relationship between corporate governance and the financial performance of selected JSE industries. The chosen study period (20022010) coincided with the launch of the King II Report and included the 20072009 global financial crisis. A combination of convenience and judgement sampling was used to draw a sample from six JSE industries. In an attempt to reduce survivorship bias, the sample included both listed firms and firms that had delisted during the study period. The complete sample comprised 227 companies (1 417 annual observations). When the study commenced, there was a lack of reliable, readily available ESG data for JSE-listed firms. An existing corporate governance research instrument was therefore refined to develop standardised data on the corporate governance compliance of the selected firms. An annual corporate governance score (CGS) was compiled for each of the firms by means of content analysis of its annual reports. Five financial performance variables were considered, namely return on assets (ROA), return on equity (ROE), earnings per share (EPS), total share return (TSR) and risk-adjusted abnormal return (alpha). The selection of these measures was based on previous research. The secondary financial data were sourced from the McGregor BFA database and the Bureau for Economic Research. The resulting panel dataset was analysed by means of various descriptive and inferential analyses. The descriptive statistics revealed an overall increasing corporate governance compliance trend. Both the disclosure and acceptability dimensions of the sample companies’ CGSs improved over time. The sample firms complied with approximately 68 per cent of the corporate governance criteria on average. The panel regression analysis showed a significant positive relationship between CGS and the accounting-based EPS ratio. Although this result is encouraging, it should be kept in mind that managers can have an influence on both these variables. On the other hand, a significant negative relationship was observed between the market-based TSR measure and CGS. The TSR measure is not adjusted for risk. Risk-adjusted abnormal returns were thus also estimated for four corporate governance-sorted portfolios. In a positive change of events, both the capital asset pricing model (CAPM) and the FamaFrench three-factor estimations showed positive alphas for the portfolio consisting of firms with the highest CGSs. These encouraging results were observed for the overall study period and the period before May 2008. Investors could thus have benefitted, in risk-adjusted terms, by investing in the sample firms with high corporate governance compliance. In the period after May 2008, the FamaFrench three-factor estimations revealed that the risk-adjusted market-based performance of almost all the sample firms were negatively affected by the global financial crisis of the late 2000s. The reported alphas for this period were, however, not significant. Based on these results, the researcher recommends that directors, managers and shareholders should consider the valuable opportunities associated with sound corporate governance compliance, rather than merely regarding it as a “tick-box” obligation.
AFRIKAANSE OPSOMMING: Hoofstroombeleggers is veral geïnteresseerd in hoe hulle finansieel by ʼn spesifieke belegging kan baat. Alhoewel dit die geval is, begin ʼn toenemende aantal sogenaamde ‘verantwoordelike beleggers’ ook die omgewing, sosiale en korporatiewe bestuursaspekte (ESG-aspekte) in hulle beleggingsanalise en eienaarskapspraktyke integreer. Korporatiewe bestuursnakoming is dikwels die eerste vlak van ESG-belangstelling vir hierdie beleggers. Vorige navorsers het die verwantskap tussen korporatiewe bestuur en verskeie maatstawwe van finansiële prestasie ondersoek, maar het onbesliste resultate ten opsigte van die aard van die verhouding gerapporteer. Ongeag die drie King-verslae wat ʼn goed ontwikkelde raamwerk vir die nakoming van korporatiewe bestuur in Suid-Afrika verskaf, is daar tot dusver nog geen omvattende akademiese studie oor die bogenoemde verwantskap in Suid-Afrika gedoen nie. Die primêre doelstelling van hierdie studie was dus om die verwantskap tussen korporatiewe bestuur en die finansiële prestasie van JSE-genoteerde maatskappye te ondersoek. Die geselekteerde studie tydperk (2002-2010) het die wêreldwye finansiële krisis van 2007-2009 ingesluit en het saamgeval met die bekendstelling van die King II-verslag. ʼn Kombinasie van gerieflikheids- en oordeelkundige steekproefneming is gebruik om ʼn steekproef vanuit ses JSE-nywerhede te selekteer. In ʼn poging om oorlewingsydigheid te verminder, het dié steekproef sowel genoteerde maatskappye as maatskappye wat gedurende die studietydperk gedenoteer het, ingesluit. Die volledige steekproef het uit 227 maatskappye (1 417 jaarlikse waarnemings) bestaan. Met die aanvang van die studie was daar ʼn gebrek aan betroubare, geredelik beskikbare ESG-data vir JSE-genoteerde maatskappye. ʼn Bestaande navorsingsinstrument vir korporatiewe bestuursnakoming is dus verfyn om gestandaardiseerde data rakende die gekose maatskappye se korporatiewe bestuursnakoming te verkry. ʼn Jaarlikse korporatiewe bestuur telling (CGS) is deur middel van inhoudsanalise van die betrokke maatskappy se jaarstate vir elk van die maatskappye saamgestel. Vyf finansiële prestasie veranderlikes is oorweeg, naamlik ondernemingsrentabiliteit (ROA), rentabiliteit van ekwiteit (ROE), verdienste per aandeel (EPS), totale aandeelopbrengs (TSR) en risiko-aangepaste abnormale opbrengs (alfa). Die keuse van hierdie maatreëls was op vorige navorsing gegrond. Die sekondêre finansiële data was afkomstig van die McGregor BFA-databasis en die Buro vir Ekonomiese Ondersoek. Verskeie beskrywende en inferensiële analises is gebruik om die gevolglike paneeldatastel te ontleed. Die beskrywende statistiek het gedui op ʼn algeheel toenemende tendens in korporatiewe bestuursnakoming. Beide die bekendmaking- en aanvaarbaarheidsdimensies van die steekproef maatskappye se CGS’s het met verloop van tyd verbeter. Die steekproef maatskappye het gemiddeld aan ongeveer 68 persent van die korporatiewe bestuurskriteria voldoen. Die paneel regressie-analise het ʼn beduidende positiewe verwantskap tussen CGS en die rekeningkundig-gebaseerde EPS-verhoudingsgetal getoon. Alhoewel die resultaat bemoedigend is, moet daar in gedagte gehou word dat bestuurders ʼn invloed op beide hierdie veranderlikes kan hê. Aan die ander kant is ʼn beduidende negatiewe verband tussen die markgebaseerde TSR-maatstaf en CGS waargeneem. Die TSR-maatstaf is nie vir risiko aangepas nie. Risiko-aangepaste abnormale opbrengste is dus ook bepaal vir vier korporatiewe bestuursgesorteerde portefeuljes. In ʼn positiewe wending het beide die kapitaal-bate prysmodel (CAPM) en die FamaFrench drie-faktor beramings positiewe alfas vir die portefeulje bestaande uit maatskappye met die hoogste CGS’s getoon. Hierdie bemoedigende resultate is vir die volle studietydperk en die tydperk voor Mei 2008 gerapporteer. Beleggers kon dus, in risiko-aangepaste terme, baat gevind het deur in die steekproef maatskappye met hoë korporatiewe bestuursnakoming te belê. In die tydperk ná Mei 2008 het die Fama-French drie-faktor beramings aangetoon dat die risiko-aangepaste markgebaseerde prestasie van byna al die maatskappye in die steekproef negatief geraak is deur die wêreldwye finansiële krisis van die laat 2000’s. Die gerapporteerde alfas vir hierdie tydperk was egter nie beduidend nie. Na aanleiding van hierdie resultate beveel die navorser aan dat direkteure, bestuurders en aandeelhouers die waardevolle geleenthede wat met standvastige korporatiewe bestuursnakoming verband hou oorweeg eerder as om dit bloot as ʼn “afmerk”-verpligting te beskou.