The Foreign Exchange Exposure Management Practices of Finnish Industrial Firms

This study employs questionnaire survey and financial accounting data to extend earlier empirical work on the foreign exchange (FX) exposure management practices of Finnish industrial firms. The paper concentrates on: (i) the form that FX corporate hedging policy takes; (ii) the control of FX procedures and trading; and, (iii) our respondents' perceptions about their ability to predict FX rate changes for hedging decisions. Our results indicate that the extent to which firms hedge FX exposure depends on the type of exposure and the form that FX hedging policy takes. Also, a significant number of the firms pursue FX hedging strategies on the expectation of attaining trading profits and this strategy appears to be accommodated within their FX policies. This feature is not explicitly demonstrated in previous studies. Finnish firms hedge a much higher proportion of both transaction and translation exposures compared to economic exposure. We partly attribute this emphasis to the requirements of the Finnish Accounting Act, which came into effect in 1993. The organisational, historical and financial settings of the firms also have significant impacts on exposure management practices. The overall implication of those results is that firms respond to changes in the financial, economic and regulatory environments in which they operate.     

The optimal portfolio of start-up firms in venture capital finance

Venture capitalists (VCs) not only finance but also add value to start-up companies. Advising firms is time consuming and creates a trade-off between intensity of advice and portfolio size. We jointly determine the optimal number of portfolio companies and the intensity of managerial advice. Diminishing returns to advice per firm call for a larger portfolio. With progressively increasing managerial effort cost, however, a larger number crowds out advice to each individual firm. As they receive less support, entrepreneurs request a larger profit share, making further portfolio expansion eventually unprofitable. Comparative static analysis shows how optimal portfolio size responds to venture returns and other parameters.     

The redistribution of wealth in inflation

The paper presents formulation of the debtor-creditor hypothesis of redistribution of wealth in inflation. A portfolio model is used to derive an expression for the change in real rate of return measuring inflation gain or loss. The situation is relevant when the market rates of return fail fully to respond to expectations or when the inflation rate is not fully predictable. Of the wealth transfers from the private sector to the government in inflation, the model only covers the case of inflation tax. The model is employed to consider the controversial issue of inventory gains in inflation. The conclusion is that neither LIFO or FIFO can be regarded as having general validity as inventory accounting method in inflation.     

UNANTICIPATED INFLATION, TAXATION, AND COMMON STOCKS

This paper focuses on the effects of unanticipated inflation on the market value of equity in a system with corporation tax and historic cost depreciation. It is shown that there exists a unique combination of debt and equity under which inflation neutrality is obtained, Whether or not unanticipated inflation hurts or benefits the stockholders in a particular firm depends upon a number of conditions. These include the depreciation rate of its assets relative to the amortization rate of its debt. Finally, the present tax system is contrasted with a fully indexed system involving replacement cost depreciation and indexation     

International entrepreneurship beyond individuals and firms: On the systemic nature of international opportunities

The present study approaches opportunities in international entrepreneurship from a systemic perspective. Based on research on the collectiveness of opportunities in international entrepreneurship and the concepts of activity and object from activity theory, we develop a systemic conceptualization of opportunity-oriented international entrepreneurship. Through an empirical study in Finland and Israel, we depict six collective opportunity beliefs, considered from the viewpoints of society, international venture, and outcome expectations. Furthermore, we induce three modalities for international opportunity as the object of collective activity and model systemic opportunity shaping as the core activity of international entrepreneurship.     

Optimal production of innovations under uncertainty

The paper reports results on a risk-neutral firm's research incentives. When unrelated to the firm's own stake in the program, the risks encourage or discourage risky research spending, depending on the properties of the research technology available. A non-decreasing time path of information builds the idea of an asymmetric probability distribution of the state of knowledge into the model. It follows that the required return on risky investments may actually fall short of the safe return. Since it is the upside risk that dominates, increased controllable risks will increase incentives for risky innovative activity. It is proved, but only in a more restricted framework (with differentiable processes), that the expectational effects involved will strengthen the positive relationship between controllable risks and the expected return.I am greatly indebted to three anonymous referees for helpful suggestions and to the Yrjö Jahnsson Foundation for financial support.