by Mak Man-Kei. / Thesis (M.Phil.)--Chinese University of Hong Kong, 1997. / Includes bibliographical references (leaves 77-78). / ABSTRACT --- p.ii / TABLE OF CONTENTS --- p.iii / Chapter / Chapter 1 --- INTRODUCTION --- p.1 / Chapter 1.1 --- Background --- p.1 / Chapter 1.2 --- Research limitations --- p.5 / Chapter 1.3 --- The organization of the paper --- p.6 / Chapter 2. --- LITERATURE REVIEW --- p.7 / Chapter 3. --- THE MODEL --- p.17 / Chapter 3.1 --- Introduction --- p.17 / Chapter 3.2 --- Description --- p.17 / Chapter 3.3 --- Definitions --- p.20 / Chapter 3.3.1 --- Hierarchy --- p.20 / Chapter 3.3.2 --- Superiority --- p.21 / Chapter 3.3.3 --- Ranks and levels --- p.22 / Chapter 3.3.4 --- Symmetric hierarchy --- p.24 / Chapter 3.3.5 --- Asymmetric hierarchy --- p.25 / Chapter 3.3.6 --- Units of time --- p.26 / Chapter 3.3.7 --- Delay cost --- p.26 / Chapter 3.3.8 --- Processing cost --- p.26 / Chapter 3.4 --- The model --- p.27 / Chapter 3.4.1 --- Total cost function --- p.27 / Chapter 3.4.2 --- Delay cost function --- p.28 / Chapter 3.4.3 --- Processing cost function --- p.30 / Chapter 3.4.4 --- Conclusion --- p.32 / Chapter 4. --- ANALYSIS --- p.34 / Chapter 4.1 --- Introduction --- p.34 / Chapter 4.2 --- Concave processing cost function --- p.35 / Chapter 4.2.1 --- Calculation example --- p.35 / Chapter 4.2.2 --- General comparison structures --- p.36 / Chapter 4.3 --- Linear processing cost function --- p.39 / Chapter 4.4 --- Convex processing cost function --- p.40 / Chapter 4.5 --- Switching costs --- p.44 / Chapter 4.6 --- Conclusion --- p.47 / Chapter 5. --- APPLICATION AND DISCUSSION --- p.49 / Chapter 5.1 --- Introduction --- p.49 / Chapter 5.2 --- Case 1: Information Gathering --- p.49 / Chapter 5.2.1 --- Presentation --- p.49 / Chapter 5.2.2 --- Discussion --- p.50 / Chapter 5.3 --- Case 2: Distribution Industry --- p.52 / Chapter 5.3.1 --- Presentation --- p.52 / Chapter 5.3.2 --- Discussion --- p.53 / Chapter 5.4 --- Case 3: Japanese Manufacturing --- p.54 / Chapter 5.4.1 --- Presentation --- p.54 / Chapter 5.4.2 --- Discussion --- p.56 / Chapter 6. --- CONCLUSION --- p.57 / APPENDIX 1 --- p.61 / APPENDIX 2 --- p.63 / APPENDIX 3 --- p.64 / BIBLIOGRAPHY --- p.73

In this thesis we provide insights into the behavior of financial managers of utility companies by studying their decisions to redeem callable preferred shares. In particular, we investigate whether or not an option pricing based model of the call decision, with managers who maximize shareholder value, does a better job of explaining callable preferred share prices and call decisions than do other models of the decision. In order to perform these tests, we extend an empirical technique introduced by Rust (1987) to include the use of information from preferred share prices in addition to the call decisions. The model we develop to value the option embedded in a callable preferred share differs from standard models in two ways. First, as suggested in Kraus (1983), we explicitly account for transaction costs associated with a redemption. Second, we account for state variables that are observed by the decision makers but not by the preferred shareholders. We interpret these unobservable state variables as the benefits and costs associated with a change in capital structure that can accompany a call decision. When we add this variable, our empirical model changes from one which predicts exactly when a share should be called to one which predicts the probability of a call as the function of the observable state. These two modifications of the standard model result in predictions of calls, and therefore of callable preferred share prices, that are consistent with several previously unexplained features of the data; we show that the predictive power of the model is improved in a statistical sense by adding these features to the model. The pricing and call probability functions from our model do a good job of describing call decisions and preferred share prices for several utilities. Using data from shares of the Pacific Gas and Electric Co. (PGE) we obtain reasonable estimates for the transaction costs associated with a call. Using a formal empirical test, we are able to conclude that the managers of the Pacific Gas and Electric Company clearly take into account the value of the option to delay the call when making their call decisions. Overall, the model seems to be robust to tests of its specification and does a better job of describing the data than do simpler models of the decision making process. Limitations in the data do not allow us to perform the same tests in a larger cross-section of utility companies. However, we are able to estimate transaction cost parameters for many firms and these do not seem to vary significantly from those of PGE. This evidence does not cause us to reject our hypothesis that managerial behavior is consistent with a model in which managers maximize shareholder value.

Thesis (Ph. D.)--UCLA, 2007. / Vita. Includes bibliographical references (leaves 82-85).

Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 2007. / Source: Dissertation Abstracts International, Volume: 68-06, Section: A, page: 2587. Adviser: Scott H. Irwin. Includes bibliographical references (leaves 94-101) Available on microfilm from Pro Quest Information and Learning.

D.Com. (Business Management) / Please refer to full text to view abstract

The objective of this study was to determine the extent to which the finance function has evolved from being mere transactional – into one being more value-adding and business-partnering. The main focus of this study is on the role of finance as a business partner. Its main function is to add value to the business and the operations, and to offer the required support, in order for management to be able to make the right decisions. In this role, finance is regarded as part of the management team – and not just an external support function providing number ‘crunching’ – but a member that provides valuable input in the processes that the business follows. They become an in-house consultant for the business, thereby providing technical knowledge, which is aligned to the manner in which the business conducts its operations. The activities that are to be done by finance in this role comprise the following: Alignment of the functions of finance with those of the business, and what is thereby required; Providing information to the business on a timely basis; Providing information that assists and is relevant in the decision-making process of the business; Having a balance between providing governance support, as well as ensuring adequate control of the assets of the organisation. Reducing non-value adding activities that can be outsourced, such as standard reports, which can be developed and housed within a linked IT system. In order to be able to perform these activities effectively, there needs to be adequate support from the organisation’s IT environment, where standard templates can be developed, which are linked, and which lead to the availability of time for the analysis of the data. The resources also needs to have the required soft skills – of which communication and the ability to influence are important aspect – as there would be times when the people in operations would need to align their business decisions to the right finance decision – without becoming an obstruction to the business. A survey was carried out involving the accountants, whose role was to support the business in the South African environment, and which provided information on the following research questions: (i) Are finance professionals moving towards becoming business partners and away from transactional back-office work? (ii) What are the main reasons for the lack of transformation of the finance function? (iii) Is the size of the organisation a factor in its transformation? (iv) Does the fact that a company is a multinational or a South African organisation have any impact on the transition? The results of the survey were used to draw a conclusion on the extent of the change in the role of finance. The research concluded that there had been some change in the role that finance was performing in regard to the business. However, there were still areas where more could be done to move the change along, and to arrive at a position where finance becomes a full business partner.

In this thesis we provide insights into the behavior of financial managers of utility companies by studying their decisions to redeem callable preferred shares. In particular, we investigate whether or not an option pricing based model of the call decision, with managers who maximize shareholder value, does a better job of explaining callable preferred share prices and call decisions than do other models of the decision. In order to perform these tests, we extend an empirical technique introduced by Rust (1987) to include the use of information from preferred share prices in addition to the call decisions. The model we develop to value the option embedded in a callable preferred share differs from standard models in two ways. First, as suggested in Kraus (1983), we explicitly account for transaction costs associated with a redemption. Second, we account for state variables that are observed by the decision makers but not by the preferred shareholders. We interpret these unobservable state variables as the benefits and costs associated with a change in capital structure that can accompany a call decision. When we add this variable, our empirical model changes from one which predicts exactly when a share should be called to one which predicts the probability of a call as the function of the observable state. These two modifications of the standard model result in predictions of calls, and therefore of callable preferred share prices, that are consistent with several previously unexplained features of the data; we show that the predictive power of the model is improved in a statistical sense by adding these features to the model. The pricing and call probability functions from our model do a good job of describing call decisions and preferred share prices for several utilities. Using data from shares of the Pacific Gas and Electric Co. (PGE) we obtain reasonable estimates for the transaction costs associated with a call. Using a formal empirical test, we are able to conclude that the managers of the Pacific Gas and Electric Company clearly take into account the value of the option to delay the call when making their call decisions. Overall, the model seems to be robust to tests of its specification and does a better job of describing the data than do simpler models of the decision making process. Limitations in the data do not allow us to perform the same tests in a larger cross-section of utility companies. However, we are able to estimate transaction cost parameters for many firms and these do not seem to vary significantly from those of PGE. This evidence does not cause us to reject our hypothesis that managerial behavior is consistent with a model in which managers maximize shareholder value. / Business, Sauder School of / Graduate

The purposes of this research report are (1) to introduce into financial management theory, the concepts of stability, resilience and steady state from general systems theory, (2) to formulate hypotheses about the relationships among rate of return, business risk, stability and resilience as exhibited by business systems, (3) to construct quantifiable surrogates for these concepts in terms of the financial operating characteristics of business systems and (4) to test the hypotheses with an appropriate statistical methodology. Business systems are investigated from two different perspectives or levels of aggregation. The first level treats each individual firm as the business system. The second level aggregates the individual firms into their respective industries based on the United States Department of Commerce's Standard Industrial Classification code, SIC. By applying this model at both levels, we can generate two duplicate sets of six hypotheses, one set for individual firms and one set for industries. The six hypotheses are: (1) Business Risk and Rate of Return are negatively correlated, (2) Resilience and Rate of Return are negatively correlated, (3) Stability and Rate of Return are positively correlated, (4) Business Risk and Resilience are positively correlated, (5) Resilience and Stability are negatively correlated and (6) Stability and Business Risk are negatively correlated. The theoretical contribution of this research project derives from the integration of general systems theory and financial management theory. The integration is based on equating the rate of return from financial theory with the steady state from systems theory. Business risk is defined in terms of the relative fluctuation in the rate of return over time. Stability is that property of a system that allows the system to maintain a steady state in spite of small or temporary perturbations to the system. Resilience is that property of a system that allows the system to maintain a steady state in spite of large or permanent perturbations. The empirical contribution of this research project is the determination of statistical relationships among rate of return, business risk, stability and resilience within business systems. The raw data collected for this study were derived from the Compustat II tape files available at Idaho State University. These files contain financial data on several thousand industrial and non-industrial companies listed on the major stock exchanges and Over-the-Counter stock exchanges. The diagram above summarizes the statistical results of this research project. The numerical values superimposed upon the connecting lines are the statistical results of the tests of the twelve hypotheses and represent respectively; the spearman rank correlation coefficient/level of significance for firms (F) and industries (I). The empirical results confirmed the postulated relationships.

Thesis (MBA)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: When it comes to risk management, academic opinion is divided into two camps. There are those who argue that risk management is a waste of resources and time, and that in spite of all the effort invested, it does not add any economic value to an organisation. On the other hand, there are those who believe that risk management not only safeguards, but also actively contributes to the value of an organisation. This study was an attempt to obtain empirical evidence from the South African sector to support one of the two abovementioned arguments. In doing so the study addresses the research problems of whether risk management and specifically Enterprise Risk Management, creates value for an organisation, and whether the fact that a company has a risk management program in place should influence investor decisions The study was conducted in the following way: Measurements of the maturity of the risk management systems and the implementation dates of these systems were obtained from the senior managers of a number of organisations by means of a questionnaire. This data was then compared with annual measurements of the value of these organisations that were taken between 2000 and 2013. To determine if there was a relationship between the value of an organisation and the risk management maturity tests were conducted to look for the following: i. A statistically significant relationship between the most recent measure of organisational value and the maturity of risk management. ii. A statistically significant relationship between risk management maturity and the most recent rate of organisational value increase. iii. A discernible difference between the rate of organisational value change before and after the implementation of an Enterprise Risk Management system. iv. A statistically significant relationship between risk management maturity and organisational value subsequent to the introduction of an Enterprise Risk Management system. The study found evidence of a significant gain in the rate of organisational value increase directly subsequent to the introduction of an Enterprise Risk Management system, but also that the increased rate was not sustained. Other tests yielded contradictory or indecisive results that did not lead to clear conclusions, but illuminated future research directions.

This dissertation focuses the corporate behaviors in a dynamic world with uncertainty. Especially, I am interested in how firms tradeoff their investment and cash savings when external financing is costly. The first two chapters fit into this theme. One considers optimal investment and financing policies when uncertainty itself is time-varying, the second investigates how firms prepare themselves against devaluation risks. Both chapters build dynamic corporate theories and test them empirically. The third chapter steps back by asking why aggregate volatility is time-varying and why is it persistent in a dynamic general equilibrium with endogenous growth. I show that endogenous asset allocation between different assets can be the reason. In the first chapter I study how firms manage their cash savings, financing, and investment when aggregate uncertainty is time-varying. I develop and estimate a dynamic model featuring aggregate uncertainty shocks, costly external financing, investment irreversibility, and time-varying risk premia. In my model, firms have a precautionary-savings motive and real options to wait, both of which interact with time-varying uncertainty and are reinforced by state-dependent risk premia. My model confirms previous findings that firms save more in cash and invest less when aggregate uncertainty is high. In addition, I show that in the high uncertainty states, (1) firms with high profitability and low cash are more likely to delay equity issuance, (2) firms with low profitability and high cash are more likely to delay payout, and (3) aggregate equity issuance and payout are both lower. Finally, counterfactual experiments show that (1) a model without dynamic uncertainties cannot explain the observed firm behaviors in high uncertainty states, and (2) time-varying risk premia amplify the impact of the aggregate uncertainty shocks. In the second chapter, I investigate the relationship between investment and cash savings in a special setting: devaluation episodes in emerging markets. Devaluation events are typically anticipated by the economy but affect local firms in the tradable versus nontradable sectors differently. Tradable firms expect higher cash flows but nontradable firms expect lower ones, even their current cash flows are stable because of the currency-pegging. I build a model to show that, investment and cash savings are both complementarity, because of future prospects, and substitution because of limited current cash balance. Before devaluation, tradable firms invest more due to better expectation of the future but have to substitute for a lower cash savings tomorrow. Empirically, I use difference-in-difference approach and two devaluation episodes in Mexico and Argentina to test these predictions. I find strong evidence in Mexico that tradable firms invested more than nontradable firms and save less, as the devaluation was approaching. Evidence in Argentina is not strong. We discuss the potential remedies and future works to do. The final chapter explores asset allocation decisions and endogenous growth volatilities in an economy with endogenous growth. Firms have two produced inputs, capital and technology. When a representative firm optimally allocates the investment between the two inputs, both the consumption growth and its volatility are functions of the economy's technology-to-capital ratio. As a result, not only the long run consumption growth is volatile, but also its volatility is endogenously stochastic. Moreover, after a large negative or positive shock, the economy is away from its optimal allocation. This takes time for the economy to travel back to the optimal allocation because of the convex adjustment costs. As a result, both the consumption growth and its stochastic volatility are persistent. Finally, we discuss the asset pricing implication of the model and show that it microfounds Bansal and Yaron (2004) long-run risk model with time-varying volatilities.