In this chapter, the learning objectives are: Explain the strategic role of capital-investment analysis, describe how accountants can add value to the capital- budgeting process, provide a general model for determining relevant cash flows associated with capital-expenditure projects, apply discounted cash flow (DCF) decision models for capital-budgeting purposes,…
Joseph Schumpeter argued in 1911 that banks play a pivotal role in economic development because they choose which firms get to use society’ s savings. According to this view, the banking sector alters the path of economic progress by affecting the allocation of savings and not necessarily by altering the saving rate. Thus, the Schumpeterian view of finance and development highlights the impact of banks on productivity growth and technological change.
This book began life in many scattered forms, including some of my earlier
writings. But the central argument was forced into a unified form during a
course of ten public lectures that I gave in the autumn of 1998 at the American
University in Cairo. There I tried to explore some of the implications of the
emergence of a single global economy, of globalisation or, in its most extreme
form, the fusion of national economies.
Based on the mandate we received from the Quality Assurance Group,
we set out to determine how the social funds portfolio, comprising 40
projects under implementation as of June 1996, was faring: How well
was this portfolio performing? Was sustainability of social funds’ sub-
project benefits an issue?
A quick word on the methodology of the review. This was a desk review.
Beginning with Titman and Wessels (1988), then Rajan and Zingales (1995) and more
recently Frank and Goyal (2004), the empirical corporate finance literature has converged to a
limited set of variables that are reliably related to the leverage of non-financial firms.
Leverage is positively correlated with size and collateral, and is negatively correlated with
profits, market-to-book ratio and dividends.
A number of OECD countries experienced an environment of low interest rates and a rapid increase in
housing market activity during the last decade. Previous work suggests three potential explanations for
these events: expansionary monetary policy, capital inflows due to a global savings glut and excessive
financial innovation combined with inappropriately lax financial regulation. In this study we examine
the effects of these three factors on the housing market.
In this chapter, you will learn: Explain the effects of financial leverage, distinguish between business risk and financial risk, understand the ‘capital structure irrelevance’ theory of Modigliani and Miller (MM), explain the roles of taxes and other factors that may influence capital structure decisions,…
The role of inancial executives in any business has expanded signiicantly
in recent years as companies become more accountable to their stakeholders
and regulators. Combine this increase in accountability with the
increasing sophistication of technology, risk management, inancial analysis,
and inancial records processing, and we see that the responsibilities of
inancial executives in any organization have expanded signiicantly.
our goal with The Complete CFO Handbook is to provide inancial
executives with the background and tools for managing a company’s inancial
The role of interest rate in the determination of investment and, hence economic
growth, has been a matter of controversy over a long period of time. Yet, what constitutes an
appropriate interest rate policy still remains to be a puzzling question. Until the early 1970s,
the main line of argument was that because the interest rate represents the cost of capital, low
interest rates will encourage the acquisition of physical capital (investment) and promotes
economic growth. Thus, during that era, the policy of low real interest rate was adopted by ...
This volume includes eleven papers that were prepared as part of a research
project on International Aspects of Taxation by the National Bureau of
Economic Research. The papers examine the role of taxation in cross-border
flows of capital and goods, the real and financial decisions of multinational
corporations, and the implications of growing economic interdependence for
a country’s choice of a tax system. These papers were presented at a
The third component of the model was demonstrable results. Capitalizing on PSI’
results-based system, Roberts felt that advertising the concrete results of PSI’
interventions would increase the effectiveness of the marketing effort and len
legitimacy to the cause. Results had the power to convince the target audience an
stimulate fundraising, which would in turn allow PSI to do even more.
In addition to promoting PSI’s work in general, publicizing the results of YouthAIDS
specifically would also be important. This could directly dovetail into cause-relate
The Inter-American Development Bank (IDB) works exclusively in Latin
America. It has just concluded a study and published a book called So-
cial Investment Funds in Latin America: Past Performance and Future Role. It
occurred about two years ago that social funds have become overwhelm-
ingly popular all over the world. They started out as a way of respond-
ing to adjustment and have developed in different ways, doing various
things. The IDB decided to look at them to determine what is working
and what is not working.
Regarding banks’ capital structures, the standard view is that capital regulation
constitutes an additional, overriding departure from the Modigliani-Miller irrelevance
proposition (see for example Berger et al., 1995, Miller, 1995, or Santos, 2001). Commercial
banks have deposits that are insured to protect depositors and to ensure financial stability. In
order to mitigate the moral-hazard of this insurance, commercial banks must be required to
hold a minimum amount of capital.
Foreword Nitin Nohria Introduction: The State of Integrated Reporting Today Robert G. Eccles Part I: The Role of the Corporation in Society Accounting and Accountability:Integrated Reporting and the Purpose of the Firm Robert Kinloch Massie A CEO’s Letter to Her Board of Directors John Fullerton and Susan Arterian Chang Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective Ioannis
The takeover of toxic assets by the government at zero cost and the corresponding write-
down of assets will create transparency, avoid the high expense of pricing distressed
assets, and will insure that shareholders are the first ones to bear the cost of failure.
risk of moral hazard will also be effectively limited. A zero-cost acquisition is also
justified based on the fact that the active management of the troubled assets is impaired
by their complex structure. This approach will also keep the bad bank’s initial capital
requirements at a minimum....
Fading support by the financial system for firms, and especially new entrants, is a major concern
in the current context, underscoring the primary importance of fixing the financial system. Growing
aversion to risk combined with other factors (such as difficulties for investors to exit) is already
drying up many sources of seed and venture capital. The total amount of venture capital investment
in the United States started declining at the beginning of 2008, and the fall accelerated at the end of
2008 and beginning of 2009 (Figure 2).
Historically speaking, the earliest asset pricing models made rel-
atively simple predictions about what it means for a benchmark to
be OE to a managed portfolio. The Capital Asset Pricing Model
of Sharpe (CAPM, 1964) implies that all investors should hold a
broadly diversiﬁed “market portfolio,” combined with safe assets or
“cash,” according to the investor’s tastes for risk. It follows that an
OE portfolio is a broadly diversiﬁed portfolio, combined with safe
assets or cash, mixed to have the same market risk exposure, or
“beta” coeﬃcient as the fund.
Current investment management practice typically assumes that
the OE portfolio is deﬁned by the fund manager’s investment “style.”
Roughly, style refers to a subset of the investment universe in which a
manager is constrained to operate, such as small capitalization stocks
versus large stocks, or “value” versus “growth” ﬁrms. The style con-
straint may be a self-declared specialization, or it may be imposed
on the manager by the ﬁrm.
Private investors can be valuable and innovative partners in maintaining and
modernizing critical infrastructure. Our current system of financing, however, has
often failed in its attempts to forge viable partnerships with private investors.
While the traditional American method of attracting private capital by offer-
ing tax-exempt municipal bonds has been successful in many instances and will
remain a valuable tool for infrastructure investment, it often leaves many large
potential investors sitting on the sidelines.
The broader objective of the FSA’s regulatory approach is to balance the
competing interests of shareholder wealth maximization and the interests of other
The FSA’s balancing exercise relies less on the strict application of
statutory codes and regulatory standards, and more on the design of flexible, internal
compliance programmes that fit the particular risk-level and nature of the bank’s