THE CAPITAL STRUCTURE PUZZLE: ANOTHER LOOK AT THE EVIDENCE

Since the formulation of the M & M irrelevance propositions 40 years ago, financial economists have been debating whether there is such a thing as optimal capital structure—a proportion of debt to equity that maximizes current firm value. Some finance scholars have followed M & M by arguing that both capital structure and dividend policy are largely “irrelevant” in the sense that they have no significant, predictable effects on corporate market values. Another school of thought holds that corporate financing choices reflect an attempt by corporate managers to balance the tax shields and disciplinary benefits of greater debt against the increased probability and costs of financial distress. Yet another theory says that companies do not have capital structure targets, but instead follow a financial pecking order in which retained earnings are preferred to outside financing, and debt is preferred to equity when outside funding is required. In reviewing the evidence that has accumulated since M & M, the authors argue that taxes, bankruptcy (and other “contracting”) costs, and information costs (the main factor in the pecking order theory) all appear to play an important role in corporate financing decisions. While much if not most of the evidence is consistent with the argument that companies set target leverage ratios, there is also considerable support for the pecking order theory's contention that firms are willing to deviate widely from their targets for long periods of time. According to the authors, the key to reconciling the different theories—and thus to solving the capital structure puzzle—lies in achieving a better understanding of the relation between corporate financing stocks (leverage ratios) and flows (specific choices between debt and equity). Even if companies have target leverage ratios, there will be an optimal deviation from those targets—one that will depend on the transactions and information costs associated with adjusting back to the target relative to the costs of deviating from the target. As the authors argue in closing, a complete theory of capital structure must take account of these adjustment costs and how they affect expected deviations from the target.     

MANAGERIAL AND ORGANIZATIONAL FACTORS ASSOCIATED WITH COMPANY PERFORMANCE PART I

T his paper utilizes information collected on more than eighty British companies and on about 800 senior managers working in them. It is in two parts. Part I starts by outlining problems involved in identifying influences on company performance. It then describes the sources of data analysed in the paper. The remainder of Part I examines the view that certain managerial and organizational attributes will tend to raise levels of performance whatever the type of company and its operating circumstances. Another approach takes the view that what makes for good performance is contingent upon the type of company and the prevailing situation. This is examined against our data in Part II of the paper. Part II concludes with an assessment of present knowledge on the managerial and organizational concomitants of company performance and the practical implicatons to be drawn from it.     

FACTORS ASSOCIATED WITH THE MANAGERIAL RATING OF SUPERVISORY PERFORMANCE

The performance of first-line supervisors normally has to be assessed without reference to objective indices. In practice, assessment is often carried out on the basis of ratings by immediate superiors. This paper examines ratings of supervisors' performance by their own managers in two Birmingham plants. A combination of factors together account for approaching half of the variation in these ratings. Only one of the predictive factors, the degree of personal flexibility expressed by supervisors, is independent of the managerial rater. Ratings of supervisory performance in fact appear to tell as much about the rater as they do about the person being rated. The findings of this study also suggest that the highly rated supervisor is the one who successfully protects his superior from the need to be involved with shopfloor activity and its disturbances.     

Changes to the ownership and control of East Asian corporations between 1996 and 2008: The primacy of politics

We investigate changes to the ownership and control of East Asia's largest companies in 1996 and 2008. Newly compiled data for 1386 publicly traded companies at the end of 2008 are supplemented with existing data on 1,606 publicly traded companies at the end of 1996. Two main findings stand out. First, where status quo political arrangements persist, preexisting ownership arrangements go unchanged or become more entrenched. Where major political changes occurred, corporate ownership would undergo substantial changes. Second, the state has become increasingly important as an owner of domestic firms as well as foreign firms.     

Marketing collaborations in the voluntary sector

This paper examines the current status of marketing collaborations in the voluntary sector, within the context of the overall charity marketing environment. It compares the incidence and scope of collaborations in the voluntary sector with those of the commercial sector; while being mindful of some important inherent differences between the two milieus. The findings are illustrated with examples of charity collaborations, both past and present. The paper concludes with some possible ways forward for both practitioners and policy makers. Copyright © 2001 Henry Stewart Publications     

Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks

The relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate. On January 20, 1997, the Securities and Exchange Commission began implementing reforms that would permit the public to compete directly with Nasdaq dealers by submitting binding limit orders. Additionally, superior quotes placed by Nasdaq dealers in private trading venues began to be displayed in the Nasdaq market. We measure the impact of these new rules on various measures of performance, including trading costs and depths. Our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality.     

Turning data into donations: A predictive model for individual giving

This paper describes a predictive model developed by the Royal National Institute for Deaf People (RNID) for the evaluation of donor management strategies. The high cost of acquiring new donors means that effective donor management is essential throughout the charity sector. Early RNID analysis of donor behaviour used conventional sector approaches. This led to the development of a predictive model that uses a statistically determined segmentation system for current donors with responses of the donor base described by a Markov model. The model is used primarily to evaluate the expected rate of return of possible campaign strategies, but there are many other ways in which the approach is of value, both to the RNID and to the charity sector as a whole.