THE COSTS OF RAISING CAPITAL

We report the average costs of raising external debt and equity capital for U.S. corporations from 1990 to 1994. For initial public offerings (IPOs) of equity, the direct costs average 11.0 percent of the proceeds. For seasoned equity offerings (SEOs), the direct costs average 7.1 percent. For convertible bonds, the direct costs average 3.8 percent. For straight debt issues, the direct costs average 2.2 percent, although they are strongly related to the credit rating of the issue. All classes of securities exhibit economies of scale, although they are less pronounced for straight debt issues. IPOs also incur a substantial indirect cost due to short-run underpricing. Most large equity offers include an international tranche, although debt issues do not.     

RAISING CAPITAL WITH PRIVATE PLACEMENTS OF DEBT

In this study the role of private placements of debt in the capital acquisition decision of public utilities is investigated. Whereas public offerings are sales of securities through financial intermediaries to the public-at-large, private placements are direct sales of securities by an issuing corporation to a limited number of institutional investors. In contrast to the negative stock price reactions typically found for public security sales, private placements are associated with significant positive abnormal returns in the shares of the issuing public utilities. Also, larger private placements appear to elicit a more favorable market response. Results are consistent with reduced information asymmetries and increased monitoring of the issuing firm resulting from the private placement.     

IMPLEMENTING ECONOMIC CAPITAL IN AN INDUSTRIAL COMPANY: THE CASE OF MICHELIN

Economic capital (also referred to as "risk capital" or "risk-based capital") is the amount of capital, generally in the form of equity or equity equivalents, that is necessary to provide an adequate cushion against lower-than-expected operating results. Over the last two decades, the concept has taken root among banks, particularly in determining the amount of capital needed to protect against financial distress in the event of unexpectedly large credit losses.
Michelin is in the vanguard of industrial companies that are beginning to apply economic capital concepts. The company uses an option-pricing approach that effectively allows the market to identify the level of economic capital that is expected to maximize corporate value. Michelin has also begun the process of attributing economic capital to individual business units and activities. By so doing, the company is able to use a single, company-wide hurdle rate for all projects and business units. Thus, instead of raising the discount rate when evaluating riskier projects and businesses, management assigns them larger amounts of economic capital (and, hence, a higher charge for use of that capital).
The use of economic capital to evaluate ongoing activities and contemplated investments makes it more likely that decisions will translate into increased shareholder value. A case in point is outsourcing. As illustrated in an example analyzing the company's decision to sell but continue sourcing from a textile factory, outsourcing decisions typically reduce a firm's required amount of economic capital—and thus an analysis based on the use of economic capital provides a more realistic picture of the expected value added from such transactions.     

A METHOD FOR ESTIMATING GLOBAL CORPORATE CAPITAL COSTS: THE CASE OF BESTFOODS

The financial management practices of many multinational corporations are at odds with both financial theory and the strategic case for global expansion. Despite the weight of academic literature, many financial executives still cling to ad hoc rules of thumb that discourage value-enhancing global growth. In particular, they tend to require large risk premiums for making foreign investments while ignoring the diversification benefits of such investments for their shareholders.
This article presents a practical method for estimating the cost of capital for use by multinationals both in evaluating foreign investment opportunities and in measuring the ongoing performance of overseas business units. The method represents a kind of hybrid version of the global CAPM—one that attempts to reconcile some of corporate executives' concerns about the distinctive risks of foreign investment with the finance theorist's portfolio perspective and reliance on capital market information. More specifically, the framework uses information from capital markets to determine the appropriate risk premiums for currency and sovereign risks associated with each country in an MNC's portfolio. But, at the same time, these risk premiums are partly offset by taking account of any diversification benefits that foreign investment provides for the firm's shareholders.
The method is illustrated using the case of Bestfoods, a Fortune 200 company with extensive overseas operations that recently adopted the method. For the purpose of evaluating new projects, Bestfoods produces quarterly updates of its cost-of-capital estimates for each country in which it has (or expects to have) major operations. For evaluating the ongoing performance of each country business unit, the relevant cost of capital is calculated annually (at the beginning of each fiscal year).     

CONTINGENT CAPITAL: INTEGRATING CORPORATE FINANCING AND RISK MANAGEMENT DECISIONS

Financial executives of companies that face a sharp increase in business or financial risks have two basic ways of protecting the solvency and strategic viability of their organizations: they can transfer those risks using insurance or derivatives; or they can raise additional capital, typically by issuing equity, to cushion the firm against the higher expected volatility. But CFOs now also have a third means of managing risk, known as "contingent capital," that effectively combines capital raising and risk management.
A contingent capital facility gives a company the right to raise capital after the realization of a loss arising from one or more specified risks, thus ensuring access to capital in potentially difficult times. For example, Swiss Re recently granted Michelin a five-year right to issue ten-year subordinated debt at a fixed spread over LIBOR, though only under conditions in which the tire maker expects its own earnings to be down. To the extent that it eliminates the need to keep more capital on the balance sheet, the use of such contingent capital has the potential to increase shareholder value by reducing a company's overall cost of capital. This article provides an introduction to some recent innovations in contingent capital, along with discussion of their role in integrating corporate finance and risk management.     

新形势下产融结合之道

就产融结合来看,东部地区的金融业比较发达,应该重点发展金融主导型的合作模式,而在中西部地区则应该发展产业主导型的合作模式。     

INTERNATIONAL LISTINGS, THE SECURITY MARKET LINE AND CAPITAL MARKET INTEGRATION: THE CASE OF US LISTINGS ON THE LONDON STOCK EXCHANGE

This paper examines for international capital market segmentation by testing for changes (both inter-temporally and inter-beta) in the parameters of the riskreturn pricing relationship caused by the listing of US stocks on the London Stock Exchange (LSE) between 1965 and 1987. It is hypothesized that international listings reduce the negative effects associated with barriers to international investments, help integrate world markets and therefore decrease internationally listed stock's required returns. Significant negative deviations from the Sharpe-Lintner (SL) pre-listing pricing relationship during the postlisting period are therefore expected, primarily caused by decreases in the intercept parameter. We find, in support of the hypothesis, significant negative deviations from the predictions of SL for our sample, although they do not appear to have an intertemporal dimension. These deviations are largely associated both with decreases in the value of the SL model's intercept parameter and with low beta firms, and point toward some integration benefits from US listings on the LSE.     

DETERMINANTS OF THE RATINGS AND YIELDS ON CORPORATE BONDS: TESTS OF THE CONTINGENT CLAIMS MODEL

A contingent claims model for corporate bonds is tested on newly issued bonds of firms with very simple capital structures. Two default risk measures derived from the model — firm return standard deviation (σ) and leverage (D/V) — explain approximately 78 percent of the variation in the agency ratings on the bonds, based on a probit analysis. Model yield premiums explain almost 60 percent of the variation in market yield premiums. In both analyses, however, firm size is a significant additional variable, suggesting that the contingent claims model is not robust to changes in scale. The assumption of nonstochastic interest rates also appears to be an important misspecification. Institutional restrictions on investments in speculative grade bonds, however, do not affect market yield premiums on such bonds, and thus do not appear to represent a serious misspecification.     

资本运营的最大化法则

资本运营是一把双刃剑,做得好。能让企业发展壮大;做得不好。则前功尽弃。企业家的资本运营能力对企业发展的意义重大。