MORGAN STANLEY ROUNDTABLE ON Capital Structure and Payout Policy

A group of distinguished finance academics and practitioners discuss a number of topical issues in corporate financial management: Is there such a thing as an optimal, or value‐maximizing, capital structure for a given company? What proportion of a firm's current earnings should be distributed to the firm's shareholders? And under what circumstances should such distributions take the form of stock repurchases rather than dividends? The consensus that emerges is that a company's financing and payout policies should be designed to support its business strategy. For growth companies, the emphasis is on preserving financial flexibility to carry out the business plan, which means heavy reliance on equity financing and limited payouts. But for companies in mature industries with few major investment opportunities, more aggressive use of debt and higher payouts can add value both by reducing taxes and controlling the corporate free cash flow problem. In such cases, both leveraged financing and cash distributions through dividends and stock buybacks signal management's commitment to its shareholders that the firm's excess cash will not be wasted on projects that produce low‐return growth that comes at the expense of profitability. As for the choice between dividends and stock repurchases, dividends provide a stronger commitment to pay out excess cash than open market repurchase programs. Stock buybacks, at least of the open market variety, preserve more flexibility for companies that want to be able to capitalize on unpredictable investment opportunities. But, as with the debt‐equity decision, there is an optimal level of financial flexibility: too little can mean lost investment opportunities, but too much can lead to overinvestment.     

From ‘embrace and change’ to ‘engage and change’: trade union renewal and new management strategies in the UK automotive industry?

This article focuses on the relationship between the introduction of new management techniques (NMTs), trade union responses and employee attitudes in the automotive industry in the UK. In contrast to a prevailing pessimistic prognosis for the survival of traditional industrial relations in the 'new management' environment, unions remain as an independent and dissenting force. Paradoxically, one of the significant features driving union recovery has been the opportunities presented by the very nature of NMTs themselves which, among other things, have opened the possibility for increased local autonomy.     

Trade Liberalisation,Market Structure and the Incentive to Merge

In this article, we consider whether a movement towards freer international trade generates incentives for firms to merge and if so what forms of merger are most profitable. In a linear Cournot framework, we show that a reduction in trade costs may, but will not necessarily, encourage mergers. Both market structure and the level to which trade costs fall are shown to play a decisive role. Domestic mergers will be encouraged only if the product market is not highly concentrated and trade costs fall below a threshold level. International mergers can be encouraged in any market structure, and are generally more profitable than domestic mergers.     

A MODIFIED VERSION OF THE KELLER PLAN IN AN ADVANCED FINANCIAL ACCOUNTING COURSE

This note provides an account of the introduction of a modified version of the Keller Plan in an advanced financial accounting course. The experiment involved (1) issuing detailed study guides which included a specification of behavioural outcomes; (2) abandoning large group lectures in favour of small group discussions and (3) measuring achievement by multiple choice testing. Although the degree of individualised learning was limited, most students felt that the changes made - especially the introduction of discussion groups - were of some improvement in their learning and development.     

The international debt situation and North-South relations

The paper analyses the debt problem and possible solutions from the perspective of the major interests involved. It is shown that the emergence of a negative basic transfer — with resources flowing from South to North — is an inevitable consequence of heavy borrowing and high interest rates. In such a situation, borrowing countries are likely to consider a variety of default options. The banks, and major financial centres, have a strong interest in avoiding 100% default. Consequently, each of the powerful interests needs an alternative solution. Any lasting solution would need to reverse the negative basic transfer, and reduce the net present value of debt. Proposed solutions are discussed in the light of these requirements. Finally, the paper provides some statistical evidence on the bargaining position of different borrowing countries.