Innovation in Euromarket hybrid funding instruments

This paper considers case studies of the use of innovative hybrid funding instruments—which have features of debt and equity issued by UK companies in the Euromarket. It considers why these instruments were developed and how they utilise the ‘grey areas' in accounting and tax regulations to achieve what managers perceive to be the main benefits of each. One of the major influences on the choice of funding instruments for a number of companies involved in acquisitions in the late 1980s was their accounting and tax treatment. the search was for cost effective finance which at the same time contributed a premium to blunt the purchased goodwill write-off. Group reserves have no legal significance but goodwill write-offs can have consequences for a group constrained by borrowing restrictions (based on its balance sheet figures). the concern with the shape of the balance sheet and the ratios calculated using these figures, combined with perceived beliefs about the tax advantages of borrowing led to the development of the Euroconvertible Preference Share issues by subsidiary companies in 1989. the tax authorities removed the attraction of this instrument to issuers. However, the innovative process continued and similar accounting and tax explanations influenced the design of another major category of hybrid—the Convertible Capital Bond. Accounting regulators have reacted to this hybrid by producing new guidelines which have removed its benefits and therefore its attraction to companies. Nonetheless, the process of innovation continues and a new instrument—the Irredeemable Convertible Bond—has been developed.     

Coal: For Miners or Consumers?

Nationalisation promised to run the coal industry efficiently in the public interest. But nationalisation is politicisation. The consumer is replaced by party politics. Despite surplus stocks, the National Union of Mineworkers under Arthur Scargill resists concentration on the most efficient pits. The industry has become an engine not for coal production but for Job preservation.     

Biases in computed returns: An application to the size effect

Previous estimates of a ‘size effect’ based on daily returns data are biased. The use of quoted closing prices in computing returns on individual stocks imparts an upward bias. Returns computed for buy-and-hold portfolios largely avoid the bias induced by closing prices. Based on such buy-and-hold returns, the full-year size effect is half as large as previously reported, and all of the full-year effect is, on average, due to the month of January.     

Gender Differences in Ethical Frameworks and Evaluation of Others' Choices in Ethical Dilemmas

This paper examines the relationship between gender and ethical decision models employed by managers. Subjects completed a survey that measured the extent to which they focused on actions or the outcomes of those actions in determining whether a behavior was ethical or not. The study also examined subjects' reactions to other managers' responses to ethical dilemmas. Results suggest that men and women do not differ in their underlying ethical models, that they do differ in the way in which they evaluate others in ethical situations, and that ethical predispositions play an important role in those evaluations.     

The Impact of the Introduction of the Euro on Foreign Exchange Risk Management in UK Multinational Companies

One of the arguments in favour of the euro is that it will eliminate foreign exchange risk for companies in the euro‐zone. There could also be benefits for companies outside this zone, although their currency risk with the euro remains. This paper considers this, by examining the effect of the euro on the currency risk management of UK multinational companies (MNCs). Using the responses from a questionnaire and interviews we found that the euro, which is being widely used in UK MNCs, is generally favoured due to reductions in exchange uncertainty and costs of managing currency risk. Nonetheless, contrary to what would theoretically be expected, there was no exact relationship in the reduction in hedging activity accompanied by this reduction in risk. The majority of MNCs stated that their hedging activities would remain unchanged. The capacity of MNCs to benefit from reductions in risk and hedging depend on the proportion of non‐UK European trade, the industry sector and the ability to transfer risk down the supply chain. Finally, despite the reductions in currency exposure experienced by the majority of companies the euro will not encourage UK MNCs to expand international trade.     

Reviews

INDUSTRIAL POLICY: MARKETS VERSUS PLANS.

Employment Institute, 1991: Improving Britain's Industrial Performance. London: Employment Institute, £4.50 paper.

Beynon, H., Hudson, R. and Sadler, D. 1991: A Tale of Two Industries: The Contraction of Coal and Steel in the North East of England. Milton Keynes: Open University Press, £9.99 paper.

LOCAL SPACE.

Murray, R. 1991: Local Space: Europe and the New Regionalism. Manchester/Stevenage: CLES/SEEDS.

THE VITAL ECONOMY.

Michael Fass and Richard Scothorne 1990: The Vital Economy - Integrating Training and Enterprise. Fountainhall, Edinburgh: Abbeystrand Publishing £7.99 paper.

THE QUALITY DEBATE.

Hodge, M. 1991: Quality, Equality, Democracy: Improving Public Services. London: Fabian Pamphlet 549, £3.50 paper.