PRIVATE INVESTMENT AND MACROECONOMIC ADJUSTMENT:A Survey

This article reviews theories of investment behavior and examinesempirical studies of investment in developing countries. Theemphasis is on understanding the interactions among macroeconomicpolicies, structural adjustment, and private investment. Thearticle deals with the effect of exchange rate policy on investment,the relationship between public and private investment, theimportance of market imperfections and financial constraintson capital formation, and the effect of economic instabilityon irreversible investment decisions.      

PRIVATE EQUITY: SOURCES AND USES

Private equity capital is playing a large and growing role in the funding of small to medium-sized, high-growth businesses. Today's private equity investment typically takes the form of purchase of a minority interest in a post-start-up, high-technology company followed by an IPO a few years later. A large number of such investors are scouring the markets for new investment possibilities and the competitive pressures are growing.
Although private equity investors can and often do add significant value to a company, private equity is potentially expensive, in terms of both loss of ownership and loss of control over long-term strategic decisions of the company. Owner-managers who want to retain as much of both as possible are advised to install more formalized business procedures, expand the company's outside relationships, and become more familiar with the company's financial needs and options. These changes should reduce capital needs, reduce the costs of private equity funding, and increase negotiating leverage when dealing with large, sophisticated private capital investors.     

PRIVATE BENEFITS: OWNERSHIP VERSUS CONTROL

We empirically decompose private benefits into benefits accruing from ownership and benefits accruing from control. We document that private benefits increase slowly with respect to the ownership level but increase rapidly with respect to the blockholder's likelihood of exercising control. The decomposition of private benefits allows us to quantify the magnitude of nonpecuniary private benefits by examining the block premium when the blockholder's likelihood of exercising control is close to zero. We find that the size of nonpecuniary private benefits ranges from 0.61% to 5.92% of the share price, or 18% to 29% of the total private benefits.     

THE GROWTH OPTIMAL CAPITAL STRUCTURE: MANAGER VERSUS SHAREHOLDER OBJECTIVES

Utilizing a geometric mean wealth maximization approach, this paper shows potential differences between the capital structure preferred by stockholders and the one preferred by managers. In general, managers may prefer more conservative, equity-oriented financing, while stockholders desire greater financial leverage. The problem arises because of differences in the degree of portfolio diversification achieved by managers and stockholders. Stockholders tend to have reasonably well-diversified portfolios, causing them to be concerned with systematic risk. Managers' portfolios are apt to be more concentrated and directly tied to the financial success of an employer, causing managers to be concerned with total risk. Thus, for a given capital structure, each party views the firm as having a different level of risk. Several executive compensation plans are considered that might more closely align the interests of managers and stockholders.     

HUMAN RESOURCE ACCOUNTING: A CRITIQUE OF RESEARCH OBJECTIVES FOR THE DEVELOPMENT OF HUMAN RESOURCE ACCOUNTING MODELS

This paper attempts to place a broad perspective on the problems of HRA by arguing that its objectives are wider than appear to have been admitted. Such is the importance of HRA for problems as disparate as economic efficiency, organisational effectiveness, and social effectiveness that it must become a subject in its own right with its own methodology and measurements. Many conceptual and measurement problems have not yet been adequately treated. The imediate objective of research should be a rigorous testing of the validity of the assumptions that have hitherto been relied on. Ce papier cherche à donner une vision globale des difficultés que rencontre la ‘Comptabilités des Ressources Humaines’, tout en désmontrant que les objectifs de celle-ci sont plus éstendus qu'on a voulu le reconnaftre. Face à des problèmes aussi divers que le rendement économique, l'harmonie des structures et le bien-être social, la ‘Comptabilités des Ressources Humaines’ prend une telle ampleur qu'elle ne peut que devenir une branche spéscifique revendiquant alors sa propre mésthodologie et ses unités de mesure. De nombreux problèmes concernant concepts et ésvaluations n'ont pas encore été traités de manière appropriée. Le premier objectif des recherches devrait consister en un examen profond de la validité des hypothèses sur lesquelles on s'est appuyées jusqu'ici. Dieser Beitrag versucht eine breite Perspektive auf die Probleme von Human Resource Accounting (HRA) zu werfen, indem behauptet wird, dass ihre Ziele weitreichender sind als scheinbar anerkannt worden ist. Die Wichtigkeit der HRA bezüglich Problemen, die so verschiedenartig wie ökonomische, organisatorische und soziale Leistungsfähigkeiten sind, spricht für die Entwicklung einer neuen, ganz selbstständigen Disziplin mit ihrer eigenen Methodik, Masse und Messungen. Viele begriffliche und Messungsprobleme sind noch nicht ausreichend behandelt worden. Das nächstliegende Forschungsziel solte eine strenge Prüfung der Gültigkeit der Annahmen sein, auf die man sich bisher verlassen hat.     

YANKEE BONDS AND CROSS-BORDER PRIVATE PLACEMENTS: AN UPDATE

With U.S. Treasury yields near historical lows and the recent relaxation of U.S. regulatory reporting requirements, the U.S. bond markets are more and more frequently the markets of choice for international issuers. Total crossborder U.S. bond issuance is expected to top $350 billion in 2000, easily surpassing previous issuance levels.
Overseas issuers have three primary forms through which they can participate in the U.S. long-term debt markets: publicly traded, SEC-registered bonds (commonly known as "Yankee" bonds); traditional private placements; and underwritten Rule 144A private placements. Each of these three financing methods has distinct benefits and limitations that should be thoroughly evaluated in light of the specific objectives of the issuer. Yankee bonds are typically the most cost efficient vehicle for large, investment grade issuers, and they are expected to account for over 75% of the $350 billion market in 2000. Second in importance is the rule 144A market, which is typically used for complex structures requiring heavy rating-agency involvement, such as future financial flow transactions and project financings. The 144A market has also become a particular favorite with international issuers because of its less formal disclosure requirements and streamlined execution process. The private placement market continues to be the dominant choice of smaller issuers, companies with complicated "stories," and firms that do not wish to submit to regular scrutiny by rating agencies. This article provides a detailed analysis of each type of bond issuance and the issues facing a financial officer in trying to determine the most appropriate source of long-term debt.     

BANK OF AMERICA ROUNDTABLE ON THE SOFT REVOLUTION: ACHIEVING GROWTH BY MANAGING INTANGIBLES

Economist Paul Romer has developed a new theory of economic growth—one that moves the factors of scientific discovery, technological change, and innovation back to the center of economic analysis. For corporate management, Romer's theory amounts to a new model of value creation. Where the old idea was to accumulate and make the most efficient use of hard assets—machines, factories, and natural resources—the new model points to soft, or intangible, assets as the key to growth and profitability.
More precisely, the focus of Romer's model is something he calls nonrivalrous information, or software for short. Software, in brief, is valuable knowledge or formulas or instructions that can readily transmitted to others and therefore replicated throughout an organization. It is nonrivalrous because it can be used outside the firm—and indeed throughout the nation and the world—without diminishing its value to the firm.
In this roundtable, Romer discusses his concept of software and its potential corporate applications with the CEOs of three successful companies. Besides illustrating the variety of forms software can take, the discussion also considers the challenge of managing the development of corporate software. One of Romer's messages to corporate management is that all workers are potentially creators of software—and this theme is echoed in the testimony of each of the three CEOs. In each case, moreover, a certain amount of decentralization of decision-making is said to be necessary to achieve continuous improvement. And a number of comments by the panelists suggest that decentralization reinforced by stock ownership or well-designed profit-sharing schemes has considerable potential to add value.     

A DISCRETE-VALUED RISK FUNCTION FOR MODELLING FINANCIAL DISTRESS IN PRIVATE AUSTRALIAN COMPANIES

This paper emphasises the inappropriateness of continuous measure predictors for both the logit and MDA models when dealing with the measurement errors that exist in much of the private company data used to model financial distress in that sector. Also, it is argued that the step function logit model that we get as a consequence of the necessity to categorise the predictors, may be more appropriate in explaining underlying nonlinear behaviour of firms at risk than the usual continuous response linear function. Within this context, the two models are compared using data from 140 private Australian companies. A logit model based on only three discrete-valued ratios gave an overall accuracy rate comparable to that of an existing continuous-valued multiple discriminant analysis (MDA) model based on six ratios. Of interest is the very different order of significance of the predictor ratios in the two models although neither model remains trustworthy for predictive purposes.     

WHAT MOTIVATES GOING PRIVATE?: AN ANALYSIS OF AUSTRALIAN FIRMS

We investigate going private transactions in Australia between 1988 and 1991. Approximately ten percent of all takeovers during this period are instances of going private. In contrast to studies of similar transactions in the United States, we find no direct evidence to support a free cash flow explanation for going private, although going private is frequently preceded by the threat of a takeover offer. However, the free cash flow explanation for going private may not be applicable in Pacific Basin countries where exchange-traded investment activity is in relatively high growth sectors and foreign ownership accounts for a large part of those investment sectors where managerial abuse of free cash flow has been alleged.