Industry analysis and investment decision-making under conditions of uncertainty

Evaluating risk is a key element in successful investment decision-making. A major risk in forecasting company performance is associated with projecting its cash flow streams by product-line which in turn is strongly related to the expected industry outlook and likely variability about this outlook. This paper sets out a methodology for evaluating this aspect of the investment decision by developing measures of expected real cash flow growth (reward) and expected annual variability of this growth (risk). These measures are constructed for 77 industry classifications at the two and three digit SIC (Standard Industrial Classification) level of detail by solving a dynamic input–output model under various economic secenarios. Aside from producing results which are relevant for producing company valuation bands, the analysis strongly suggests that perceptions of which industries are ‘winners’ and which are ‘losers’ are significantly altered when both ‘reward’ and ‘risk’ are used as criteria as opposed to either one alone. Finally, the methodology also produces results which measures the sources of cash flow growth in terms of relative price performance, productivity, and demand for output. Since there measures can be used as indicators of the quality of industry real cash flow growth, industry performance can be further arrayed within the broad categories of winning and losing industries. Several examples of how this is done are offered.     

Technological heterogeneity and corporate investment

We propose an importance-sampling procedure to improve the computational performance of the simulated method of moments (SMM) for the estimation of structural models with fixed parameter heterogeneity. The main advantage of the procedure is that it does not require to simulate observations every time that the structural parameters change during the minimization of the SMM criterion function. We illustrate the use of our method by estimating a neoclassical model of investment for a sample of US manufacturing companies, allowing the technological parameters to vary across firms.     

An analysis on corporate governance

Corporate governance has become one of the major international issues that have succeeded in attracting a good deal of public interest in recent years, especially since the recent spate of ＂world famous＂ scandalous corporate failures. Today, it is considered that corporate governance plays an important role in the economic health of corporations and society in general. Improving corporate governance is a systematic project, it is necessary to the internal governance and external governance of the ways multi-pronged.     

Economic uncertainty and growth performance: a macroeconomic modeling analysis for Pakistan

This paper investigates the effects of economic uncertainty on growth performance of Pakistan through developing a small macroeconomic model. The GARCH method has been used for construction of economic uncertainty variables related to macroeconomic policies. The structural outcomes clearly indicate that economic policy uncertainty affects negatively on real and nominal sectors of Pakistan. The forecasting of model and different policy uncertainty simulation shocks also indicated that an adjustment in economic policies due to change of policy objectives create uncertain environment in country, which not only deteriorates the investment climate of country, it also affects the economic growth. Our study concludes that economic uncertainty not only reduces the current investment and economic growth, it also affects the future decision of investment and economic growth. This study suggests that sustainable and steady economic policies always reduce economic uncertainty and promote the confidence of economic agents, which help in achieving the targets of investment, trade and economic growth. Our study also maintains the predictability and reliability of government policies for the accomplishment of macroeconomic goals and economic development of country.     

Regime uncertainty and optimal investment timing

We construct a real options model in which a regime change is expected at a pre-determined future time and study the effects of regime uncertainty on a firm's strategic investment decision, taking into consideration the remaining time to the regime change and the probability of each regime state. We show that just before the time of a regime change, firms should act as if the worst-case scenario was about to happen, even if a good state is highly possible.     

创投企业财务管理探讨

科技是第一生产力,由科技直接带动的知识经济将成为本世纪经济发展的主流,作为知识经济的支柱产业,以高新技术为代表的创投产业正以前所未有的速度发展,但与此同时,创投企业的财务管理工作却相对落后,不能为创投企业的投融资作出科学的决策。研究目的在于充分认识创投企业财务管理工作特殊性,并结合其高收益和高风险的财务经营特征,研究创投企业如何在财务管理工作的各个阶段做好财务决策。     

横跨粤港澳三地的集团公司资金管理模式研究

本文从不完善因素出发对相关公司财务理论进行了系统的回顾,重点阐释了在税收、破产成本、代理冲突以及信息不对称等不完善因素的作用下,公司投融资决策间的相互作用关系.     

Time series analysis of the nexus among corruption,political instability and judicial inefficiency in Pakistan

The purpose of this study is two folds: firstly, to analyze the direction of causality between corruption and political instability directly and secondly, to determine the causality between corruption and political instability indirectly through judicial inefficiency in Pakistan. The causality between corruption, political instability and judicial inefficiency is tested by applying Toda–Yamamoto Granger causality test. The results show that there is a lack of direct causal relationship between corruption and political instability. However, political instability and corruption cause each other indirectly through judicial inefficiency. The study highlights the critical role of judicial inefficiency leading to an important policy implication.     

An empirical analysis of social media usage,political learning and participation among youth: a comparative study of Indonesia and Pakistan

Quality & Quantity - Youth participation in political matters has gained attention among people around the globe where youth involvement in certain political activities has been witnessed (of...     

Finite project life and uncertainty effects on investment

This paper revisits the important result of the real options approach to investment under uncertainty, which states that increased uncertainty raises the value of waiting and thus decelerates investment. Typically in this literature projects are assumed to be perpetual. However, in today's economy firms face a fast-changing technology environment, implying that investment projects are usually considered to have a finite life. The present paper studies investment projects with finite project life, and we find that, in contrast with the existing theory, investments may be accelerated by increased uncertainty. It is shown that this particularly happens at low levels of uncertainty and when project life is short.     

Security-holder cash flows and the valuation of corporate investment projects

The difference between adjusted present value and cost-of-capital discounting procedures for evaluating corporate real-asset investment projects is re-examined. The two approaches are shown to contain different implicit assumptions about the distribution of project cash flows to security-holders. The consequences thereof for the proper valuation of individual projects in the context of a multiproject investment plan are considered.     

The UK corporate tax reform and business investment decisions

The 1984 Finance Act made fundamental changes to the UK corporate tax system. Evidence from a detailed study of sixty past investment decisions is used to assess the likely effects of the shift from a high-tax, high-allowance system to a system of low taxes and allowances. This suggests that 100% allowances have had little impact on the scale of investment since 1979, reflecting limited taxable capacity and the importance of market considerations in investment decisions. Timing effects were more common, especially among small firms sampled. The post-tax cost of capital will fall for some firms but few appeared to use strict cost of capital criteria in assessing investments.     

Exploring tax evasion in the context of political uncertainty

We present a model of agents facing the uncertainty of two future forms of government who are able to insure against this uncertainty by hiding funds from taxation. In order to choose whether or not to hide funds from taxation, agents need to know policy choices that each government would make should it come to power. But each government, before it could make its decision, would need to know the choices of the agents who would, for example, produce tax revenues. This informational tension is resolved endogenously. We derive the resulting level of tax evasion in society and the optimal choices made by the potential governments. We examine how changes in governmental structure would affect the level of tax evasion, and how that, in turn, would affect a particular form of capital flight.     

Risk aversion and business cycles: An empirical analysis

Unlike investors, who tend to maintain highly-diversified portfolios, private entrepreneurs usually lack access to complete risk-pooling for idiosyncratic risks, thus more directly internalize the cost of volatility. Risk aversion, however, modifies the optimal contract between entrepreneurs and lenders by incorporating the risk premium that entrepreneurs demand for the uninsurable risk: the private equity premium. Consequently, real shocks tend to be amplified as changes in entrepreneurs’ net worth affect the private equity premium and so the rental rate of capital, investment and output. This theoretical framework suggests that economies where the private entrepreneurial sector is a relatively larger, and therefore more vulnerable to uninsurable risk, all else equal, should present higher volatility. I test this prediction by (1) conducting a simple reduced-form analysis that shows that output volatility is negatively associated with the relative importance of the corporate vs. the privately-held sector; and (2) estimating the model's structural parameters. Intuitively, countries where private entrepreneurs are predominant and so risk aversion is likely to impose stronger impacts, positive risk aversion coefficients should be found. Results suggest that risk aversion is empirically more relevant for economies like Argentina, Brazil, Chile, Korea, Mexico and Thailand than for Canada, France, Germany, the U.K. and the U.S.     

Attitude towards risk,uncertainty, and fixed investment

We explore the relevance of the risk attitude of managers to the investment-uncertainty relation. Higher moments of the distribution of net profits are used to measure the risk premium of the firm, from which we derive a proxy for the risk aversion of managers. Using an unbalanced panel of Dutch listed firms, we find that in general a low degree of risk aversion coincides with a positive impact of demand uncertainty on investment. More specifically, we find that risk-averse firms respond to demand uncertainty by cutting investment, while the investment undertaken by risk-taking firms responds to demand uncertainty positively.     

Bank capital regulation,loan contracts,and corporate investment

This paper studies the link between bank capital regulation, bank loan contracts and the allocation of corporate resources across firms’ different business lines. Credit risk is lower when firms write contracts that oblige them to invest mainly into projects with highly tangible assets. We argue that firms have an incentive to choose a contract with overly safe and thus inefficient investments when intermediation costs are increasing in banks’ capital-to-asset ratio. Imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs.     

Stakeholder value analysis: a methodology for intergrating stakeholder values into corporate enviromental investment decisions

Increasingly, decision‐makers in industry are being faced with complex investment decisions created and made emotive by diverse stakeholder expectations. Investments with the potential to have an impact on a company's environmental performance are a prime example of this since they are driven by multidimensional impacts, many of which are difficult to quantify in scientific and monetary terms. This paper presents a stakeholder value analysis (SVA) model, which can be used to address such problems, using a multiple‐attribute decision methodology. This decision tool has been developed and validated through a series of industrial applications, one of which is outlined here. This application describes the use of the tool in a company context whereby stakeholders from within the company are canvassed for their priorities and views. The SVA tool is used not only to guide and support this process but also to analyse the data and consequently produce output decision metrics, which express the preferences of all relevant stakeholders and which can therefore be more confidently used to support the final decision. Copyright © 1999 John Wiley & Sons, Ltd and ERP Environment.     

The analysis of corporate governance policy and corporate financial performance

The main purpose of this study is to investigate the relationship between the quality of corporate governance policy and the firm financial performance and. Data were collected from Corporate Library. A sample of 3,068 firms from the database of 2010 Corporate Library was analyzed. Logistic regression models were employed and SPSS statistical package was utilized to perform the analysis. Our results show that when firms have better corporate governance policies, they are more likely to perform better. Specifically, when firms have a better board rating, compensation policy, takeover defense strategy, accounting practice, and a formal governance policy, they are more likely to perform better than their counterparts without such quality corporate governance policies.     

Role of tariffs,imports substitution and investment efficiency in economic growth of Pakistan

Quality & Quantity - This paper explores the impact of tariffs, imports substitution and investment efficiency on economic growth in Pakistan. For this purpose, secondary data was collected...