Bankruptcy,interest tax shields and ‘optimal’ capital structure: A cash flow formulation

This paper presents a cash flow formulation of the capital structure problem in the presence of corporate taxes. In contrast to the classic result of Modigliani and Miller, it is shown that an optimal capital structure does not involve exclusive reliance on debt financing.     

Viasystems Group,inc.

Viasystems Group, Inc. (Viasystems) is an international supplier of electromechanical assemblies and components. It specializes in manufacturing printed circuits and assembling electric cables and industrial metal cabinets. The case concerns the Printed Circuit Division at Viasystems and its need to adapt its costing system to the relocation of its manufacturing activities to China under its strategic planning, begun in 2001. Planning and controlling operating costs and the presentation of the financial statements have therefore become major issues. The case is set in 2006, six years after the start of progressive offshoring of manufacturing to China. It describes: 1) how external environmental pressures and the need for profitability have led to a critical strategic decision; and 2) how this new business model has changed upper management's informational needs, leading them to rethink their costing system, particularly at the Chinese plants. Setting the case in 2006, when all the plants have been relocated to China, enables discussions of the challenges that management will have to cope with in the future, after the operations transfer has been completed and the consequences on the management control system.     

The role of government aid to firms during the transition to a market economy: Russia 1992-1994

The paper develops two economic grounds for gradualism in the context of the Russian move toward a market economy: one for the support of output through subsidies, another for similar support through credit. The first argument relates to the usual case for softening the blow to a sector hit by an adverse, permanent shock. The other argument depends on the absence of a well-functioning capital market. Having presented the two arguments, we discuss the extent to which they justify the course of Russian policy. Essentially we show that the arguments support much less gradualism than actually took place in Russia in 1992 and 1993.     

The welfare case for the European Monetary System

This paper argues that the European Monetary System can be interpreted as a cooperative game yielding benefits to its members. A simple model is set up in which it is shown that the EMS solution is superior to Nash. If the menber countries differ, this superiority to Nash may require an occasional realignment. It will also then require that there be no sterilization of foreign exchange interventions, since otherwise the system would collpase. The EMS is interpreted in this paper as an arrangement manner, and not o Bretton-Woods type of arrangement when there is a leader-follower relationship inside.     

The effects of workers' participation on enterprise performance: Empirical evidence from French cooperatives

The results of estimating production functions augmented by various measures of workers' participation on a large enterprise level data set of French cooperatives are reported. Value added is found to be an increasing function of participation in profits, in collective membership and in ownership, even when a wide assortment of enterprise specific and environmental factors are taken into account. This finding is very robust, surviving tests between alternative specifications of technology, for reverse causality, for simultaneous equation bias and for multicollinearity. The typical productivity effect from participation, however, is small, around 5% of output. The results suggest that Western policymakers should investigate ways to increase workers' participation in capital stakes and profit shares.     

Monetary instability and share-market risk: Canadian evidence

This note presents Canadian evidence on the linkage between the level of risk exhibited by the share market and instability in monetary policy. Recent findings for the US financial market which establish such a relationship are corroborated using this new data set.