published_or_final_version / Economics and Finance / Doctoral / Doctor of Philosophy

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This dissertation comprises three essays. In the first essay, I develop a contingent-claims model to investigate the impact of managerial entrenchment on corporate policies and security valuation. The model emphasizes the role that managerial agency issues play in determining both a firm's dividend payout and capital structure. I show quantitatively that self-interested managers' leverage choices deviate from those ex ante maximize firm values. The results suggest that dividend yields are negatively affected by both leverage ratios and managerial entrenchment. They provide implications for empirical research attempting to relate dividend policy to capital structure. In addition, the model offers a new framework to measure managerial entrenchment using observed leverage and dividend payout. / In the second essay, we use a set of structural models to evaluate the price of default protection for a sample of US corporations. In contrast to previous evidence from corporate bond data, CDS premia are not systematically underestimated. In fact, one of our studied models has little difficulty on average in predicting their level. For robustness, we perform the same exercise for bond spreads by the same issuers on the same trading date. As expected, bond spreads relative to the Treasury curve are systematically underestimated, consistent with their being driven by significant non-default components. This is not the case when the swap curve is used as a benchmark, suggesting that previously documented underestimation results may be sensitive to the choice of risk free rate. / In the third essay, we develop a valuation model that simultaneously captures credit risk and interest rate risk, and apply it to study the valuation of putable corporate bonds. We ask what risks put features provide insurance against in practice - credit risk, liquidity risk or interest rate risk - and to what degree? We find that they reduce the components of all three risks in bond spreads. The most important, perhaps surprisingly is default or spread risk, followed by term structure risk. The reduction in the liquidity component is present but rather small.

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Many organisations today are still not making use of Management Accounting tools to assist in providing sustainability information for decision-making and the influence this can have on the financial performance of an organisation. This may have a negative impact on the financial performance of organisations, the result of the number of errors and miscalculations that can occur, including obsolete cost drivers; miscalculated business decisions, inaccurate information and human errors. Without applying Management Accounting tools, managers of organisations may find it difficult to improve the day-to-day operations and to take decisions to enhance the financial performance of their business. In this study, information was collected from interviews to determine whether Management Accounting tools could provide sustainability information for decision-making, and how this would influence the financial performance of an organisation. The research was carried out in organisations listed on the JSE. This study found that Management Accounting tools are important in providing sustainability information for decision-making and in determining how this information influences the financial performance of JSE listed organisations. Furthermore, Management Accounting tools provide strategies that influence decision-making and performance, although decision-making is the responsibility of executives or directors of the organisations. The study also found that Management Accounting tasks are performed by financial managers who focus solely on financial statements and reporting. Hence future research should focus on the importance of devolving Management Accounting roles to financial accountants or managers to enable the organisation to focus on different reports for different outcomes. / Management Accounting / M. Phil. (Management Accounting)

Thesis (Ph. D.)--University of California, San Diego, 2005. / Vita. Includes bibliographical references.

Many organisations today are still not making use of Management Accounting tools to assist in providing sustainability information for decision-making and the influence this can have on the financial performance of an organisation. This may have a negative impact on the financial performance of organisations, the result of the number of errors and miscalculations that can occur, including obsolete cost drivers; miscalculated business decisions, inaccurate information and human errors. Without applying Management Accounting tools, managers of organisations may find it difficult to improve the day-to-day operations and to take decisions to enhance the financial performance of their business. In this study, information was collected from interviews to determine whether Management Accounting tools could provide sustainability information for decision-making, and how this would influence the financial performance of an organisation. The research was carried out in organisations listed on the JSE. This study found that Management Accounting tools are important in providing sustainability information for decision-making and in determining how this information influences the financial performance of JSE listed organisations. Furthermore, Management Accounting tools provide strategies that influence decision-making and performance, although decision-making is the responsibility of executives or directors of the organisations. The study also found that Management Accounting tasks are performed by financial managers who focus solely on financial statements and reporting. Hence future research should focus on the importance of devolving Management Accounting roles to financial accountants or managers to enable the organisation to focus on different reports for different outcomes. / Management Accounting / M. Phil. (Management Accounting)

M.Com. (Business Management) / Statistics have shown that 227 companies and close corporations were liquidated during 1993. In addition 386 private persons, sole proprietors and partnerships were adjudged insolvent. These liquidations and insolvencies came about in all industries. By making use of ratio analysis, management can identify early danger signs and determine the presence of weaknesses in their business. There are some other critical factors and aspects that become evident from everyday trading activities that also point to danger signs. Management should be mindful and become aware of the danger signs at an early stage so that corrective action may be taken during a recessionary period. Numerous management aids in the field of financial discipline are at the disposal of management when applying corrective action. The core principles of effective asset management covering cash flow management, credit control, stock control and asset control should be employed to ensure survival during difficult times. Furthermore it is of critical importance that management makes use of the correct sources of financing and knows where to obtain it. It is also important that management addresses the other functional disciplines within the business. Management should continue the function of marketing and selling its products. Checklists containing useful questions should be applied to generate maximum sales. Production and sales should, however, be synchronised. Effective production management aids should be applied to create this harmony. It is also necessary that products be continually developed and that research into new areas be conducted. Management should handle labour relations and political and legal aspects with great sensitivity during recessionary periods. All employees deserve fair treatment and should be respected for their convictions. Appropriate general management principles should be applied at all times including effective leadership, motivation, communication and company philosophy. By making use of the proposed management aids, management can considerably improve the chances of the undertaking to survive a recession.

This paper studies foreign currency adjustments in executive compensation (i.e. exclusionof foreign currency impacts from accounting-based performance metrics). In light of recent debates on the pros and cons of using non-GAAP adjustments in compensation, I propose a rational explanation for adjusting foreign currency concerning firm’s operating decisions. I employ real options theory to study foreign currency fluctuations in decision making. I show, both analytically and empirically, that Integration Level, the extent of coordinated activities or cross-border transactions between the parent and its foreign subsidiaries, can serve as an explanation. Firms with a high level of integration are less likely to adopt foreign currency adjustments. On average, firms consider foreign currency fluctuations to make corporate decisions; the usage of foreign currency adjustments in executive compensation is less likely to be a result of managerial opportunism.

The literature on agency theory has generally modelled and tested the firm’s dividend and capital structure decisions separately. In this dissertation, a model is developed based on agency cost considerations and dividends as a means of controlling equity agency costs, which simultaneously determines the optimal capital structure and payout rate for firms. However, to the extent that alternative, non-dividend mechanisms exist across industries and industry groups that may either diminish or nullify the effect of dividends in controlling equity agency costs, simultaneity is not predicted to be universal but a function of industry characteristics. This central hypothesis is tested on three industry groups: industrial firms, banks and electric utilities. Banks and utilities are regulated. Industrials are not regulated but are subject to other equity agency cost controlling mechanisms like the threat of takeover and incentive-based compensation packages. As hypothesized, the results for industrials show no simultaneity in the subsample where these other mechanisms are present, and simultaneity in the subsample where dividends are the dominant mechanism. For banks and utilities no simultaneity is found since regulation, through its effect on the debt agency cost curve of firms in these industries effectively precludes its occurrence. / Ph. D.