FACING THE GIANTS

From the award-winning producers of FLYWHEEL comes a new, action-packed, family-friendly drama about a high school football coach who draws up a new game plan for his team … and himself.
In his six years of coaching, Grant Taylor has never had a winning season. Even the hope of a new season is squelched when the best player on his Shiloh Eagles decides to transfer schools. After losing their first three games of the season, the coach discovers a group of fathers are plotting to have him fired. Combined with pressures at home, Coach Taylor has lost hope in his battle against fear and failure.

However, an unexpected challenge helps him find a purpose bigger than just victories. Daring to trust God to do the impossible, Coach Taylor and the Eagles discover how faith plays out on the field … and off.

With God, all things are possible …

=> From www.facingthegiants.com

This film is Highly recommended for you all of my friends..

Give your day a new, bright, shining Bless from God

Watch it, Give a little more attention on the words they say, and Love it..

Final "Diamond Word" for you guys

"Give Your Best in every aspect in your life, and Let God do the rest"

"Be Prepared for the Rain"

God Bless You

Bio-fuel in Innovation Cell

The Seed-Incubator Pilot Project

I-CELL (Innovation Cell) adalah Sebuah Pilot Project. Pilot project ini adalah sebuah laboratorium yang bertujuan mengembangkan dan menguji potensi serta usaha bisnis baru. Dari laboratorium ini diharapkan akan menghasilkan ahli-ahli teknologi dan pengusaha-pengusaha baru untuk tingkat regional. Kami menyiapkan generasi muda berbakat dengan memberikan kesempatan untuk mewujudkan masa depan, dan seiring dengan hal itu, menciptakan nilai nyata bagi perusahaan-perusahaan yang ada.

Dalam I-CELL ini, terdapat tiga Tim yaitu, Biofuel, Waste Treatment, dan Seaweed project; yang setiap Tim terdiri dari 5 orang Mahasiswa yang dibagi dalam 3 disiplin Ilmu (Mechanical, Chemical, dan Business) dari seluruh Indonesia.
I-CELL ini di sponsori oleh gtz, ded, dan ATMI sebagai tuan rumah penyelenggara I-CELL 2008 yang juga merupakan I-CELL perdana di Indonesia ini. I-CELL diselenggarakan mulai tanggal 1 November 2008 sampai dengan 28 Februari 2009 (4 Bulan).

Saya sendiri (dalam Foto kanan bawah), yang masih menyandang status Mahasiswa fakultas Ekonomi, Atma Jaya Yogyakarta, mendapatkan kesempatan untuk bergabung dalam Bio-fuel Team, dengan posisi Business. Adapun Teman2 saya satu Tim (dari kiri) yaitu
Poponk - Dari Atmi Surakarta dengan posisi Mechanical;
Budi - Dari Tek. Kimia UNS dan resign dari "DUNIATEX, Palur Karanganyar dengan posisi Chemical;
Edwin - Dari Politeknik Manufaktur Bandung dengan Posisi Mechanical; dan
Eni - MIPA Biologi UNS dengan Posisi Chemical

Kami berlima ditraining dan dikarantina selama 4 bulan ini untuk melakukan sebuah penelitian sesuai dengan subject yang kami masuki untuk membuat sebuah business plan yang nantinya pada akhir program ini, akan kami presentasikan pada para investor baik dari dalam maupun dari luar negeri yang sekiranya akan mendanai proyek yang kami rencanakan selama 4 bulan ini.

Trainer terdiri dari para pakar dan praktisi dari bidangnya masing-masing yang secara total kami disini mendapatkan lebih dari 20 praktisi dan expert yang akan memberikan pendalaman secara teoritis dan praktis dalam membuat business plan secara keseluruhan yang berhubungan dengan proyek kami masing-masing.
Sebagai Informasi Trainer dari Universitas Atma Jaya Yogyakarta (SAJA) terdiri dari:
Prof. Dr. Sukmawati Sukamulja
Dr. M. F. Shellyana Junaedi, SE, Msi.
Slamet Santoso Sarwono, MBA, DBA
Dr. E. Kusumadmo
Fandy Tjiptono, SE, M.Com
Dra. Christina Wiwik Sunarni, MSA, Akt.
Orang - orang Hebat di Bidangnya Masing-masing

Saya mengharapkan langkah saya mempublish program Innovation Cell ini dengan harapan dapat menjadi sebuah pendobrak Teman-teman Mahasiswa lain, terutama Mahasiswa Atma Jaya Yogyakarta, untuk "melirik" I-CELL sebagai salah satu tujuan untuk menerapkan prinsip Ilmu yang kita dapat di Universitas.

Salam Dashyat!!!!

Jika ada pertanyaan tentang Program I-CELL, dapat di lihat si www.atmi.ac.id di seed incubator

atau e-mail di krist_ianto_2004@yahoo.com

(JOB) Thomson Investment Banking Solutions Group Partners with Clients on Proprietary Development, Integration Initiatives

Ø Thomson Financial → Thomson Corporation and leading provider of information and technology solutions → to the worldwide financial community
Ø Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results
Ø Leader provider of value-added information, software applications and tools to more than 20 million users in the fields of law, tax, accounting, financial services, higher education, reference information, corporate training and assessment, scientific research and healthcare
Ø Launched formal organization of the → Thomson Investment Banking Solutions (TIBS) group → partners with Thomson's investment banking clients → build and customize content-rich, scalable applications for accessing financial and business information
Ø Using a consultative approach, TIBS product and technology teams operate with a deep understanding of how content is managed and used in clients' businesses.
Ø TIBS group benefits from Thomson's historical experience managing the complexities of integrating disparate data sets into proprietary applications
Ø outsourcing of data management provides a significant operational cost savings, and speed to market for integrated applications
Ø TIBS, backed up by Thomson's content and data-integration tools
Ø suite includes components such as TKO
o TKO →
§ a universal searching system across all Thomson Financial content, the Press
§ a high speed caching architecture
§ vast library of pre-built but customizable investment banking-specific content components → that easily blend with third party or proprietary information
Ø The resulting application for enterprise-wide data distribution and integration is delivered via an internal enterprise network or intranet /extranet
Ø Thomson is the logical choice for any global investment bank seeking to derive efficiencies from partnering or outsourcing → TIBS already has been successful in implementing solutions for several top clients → Help streamline workflow, create competitive advantages around workflow and the use of information, and reduce costs associated with multiple system maintenance
Ø Technology had not evolved to the point where open, distributed systems were stable, scalable and secure enough
Ø Small players could not deliver integrated solutions on the scale required
Ø TIBS objectives → Given the consolidation in the information industry and improvement in technology, investment banks now have the opportunity to look to gain efficiencies through partnering with Thomson

Thomson Investment Banking Solutions Group Partners with Clients on Proprietary Development, Integration Initiatives (ARTICLES)

Abstract (Summary)
NEW YORK, Sept. 26 /PRNewswire-FirstCall/ -- Thomson Financial, an operating unit of The Thomson Corporation (NYSE: TOC; TSX: TOC), and leading provider of information and technology solutions to the worldwide financial community, today announced the formal organization of the Thomson Investment Banking Solutions (TIBS) group. Leveraging Thomson's 30 years of content management experience and established technology infrastructure, the TIBS group partners with Thomson's investment banking clients to build and customize content-rich, scalable applications for accessing financial and business information.
Using a consultative approach, TIBS product and technology teams operate with a deep understanding of how content is managed and used in clients' businesses. The TIBS group benefits from Thomson's historical experience managing the complexities of integrating disparate data sets into proprietary applications. Thomson offers a range of development levels -- from simply providing raw data through open system access to designing and building complete customized solutions that directly reflect the client's workflow and integrate into their existing technology environment. For many clients, the outsourcing of data management provides a significant operational cost savings, and speed to market for integrated applications.
» Jump to indexing (document details)
Full Text (695 words)
Copyright PR Newswire - NY Sep 26, 2002
Experienced Thomson Team Building and Deploying Technology and Information Solutions at Investment Banks; Using Consultative Approach in Developing
Content-rich Scalable Applications
NEW YORK, Sept. 26 /PRNewswire-FirstCall/ -- Thomson Financial, an operating unit of The Thomson Corporation (NYSE: TOC; TSX: TOC), and leading provider of information and technology solutions to the worldwide financial community, today announced the formal organization of the Thomson Investment Banking Solutions (TIBS) group. Leveraging Thomson's 30 years of content management experience and established technology infrastructure, the TIBS group partners with Thomson's investment banking clients to build and customize content-rich, scalable applications for accessing financial and business information.
Using a consultative approach, TIBS product and technology teams operate with a deep understanding of how content is managed and used in clients' businesses. The TIBS group benefits from Thomson's historical experience managing the complexities of integrating disparate data sets into proprietary applications. Thomson offers a range of development levels -- from simply providing raw data through open system access to designing and building complete customized solutions that directly reflect the client's workflow and integrate into their existing technology environment. For many clients, the outsourcing of data management provides a significant operational cost savings, and speed to market for integrated applications.
The team's investment banking domain expertise forms the core of TIBS, backed up by Thomson's content and data-integration tools. This technology suite includes components such as TKO, a universal searching system across all Thomson Financial content, the Press, a high speed caching architecture, and a vast library of pre-built but customizable investment banking-specific content components that easily blend with third party or proprietary information. Typically, the resulting application for enterprise-wide data distribution and integration is delivered via an internal enterprise network or intranet/extranet.
Authoritative content drawn from across Thomson Financial includes company filings, fundamentals and ratios, brokerage and market research reports, delayed and real-time security prices, corporate transaction data and ownership information, company earnings data and news. The ability to create new or customized applications allows bankers and information professionals to retrieve "current-awareness" information on companies as well as to perform in-depth research.
"Thomson is the logical choice for any global investment bank seeking to derive efficiencies from partnering or outsourcing, since we are already a leading provider of content and analysis used by banks in their advisory process," said Mark Lerch, president of the Thomson Financial Investment Banking Group. "TIBS already has been successful in implementing solutions for several top clients," he added. "Our banking clients want to create scalable applications that better fit their workflow, rather than adapt their workflow to vendor software. We help streamline workflow, create competitive advantages around workflow and the use of information, and reduce costs associated with multiple system maintenance," said Lerch.
"In the past, investment banks have had little choice other than to build integrated knowledge systems largely from scratch," said Kenneth Read, executive vice president, Thomson Financial Investment Banking Group and head of the TIBS group which includes top talent drawn from the investment banking arena. "Technology had not evolved to the point where open, distributed systems were stable, scalable and secure enough. Also, small players could not deliver integrated solutions on the scale required," said Read. "Given the consolidation in the information industry and improvement in technology, investment banks now have the opportunity to look to gain efficiencies through partnering with Thomson," he added.
About Thomson Financial
Thomson Financial is a US$1.6 billion provider of information and technology solutions to the worldwide financial community. Through the widest range of products and services in the industry, Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results. Thomson Financial is part of The Thomson Corporation (www.thomson.com), a leading provider of value-added information, software applications and tools to more than 20 million users in the fields of law, tax, accounting, financial services, higher education, reference information, corporate training and assessment, scientific research and healthcare. The Corporation reported 2001 revenues of US$7.2 billion and its common shares are listed on the New York and Toronto stock exchanges (NYSE: TOC; TSX: TOC).

How CORRUPT is WALL STREET?

Ø Scandals in wall street → Junk-bond schemes in 1980s, the prudential Securities limited-partnership debacle in early 90s, and price fixing by Nasdaq
Ø Wall Street operates → Shady IPO allocation practices → Enron Corp’s Collapse
Ø The damage goes way beyond the tattered reputation of the firms and their beleaguered analysis
Ø The entire economy depends on the financial system → to raise and allocate capital
Ø If investors lose confidence in information → investors hesitate to put money into stocks → could deepen and prolong the bear market
Ø This condition can put a damper of economy → if company less willing or less able → to raise capital on Wall Street
Ø Wall Street → struggled with conflicts of interest
Ø Companies want high price for their stocks at IPO and low interest rates on bond → investors want Low prices and high rates
Ø Between last quarter of 1998 and first quarter of 2000 → Wall Street flooded of money during the Tech Bubble → Wall Street earned $10 Billion in fees → by raising nearly $245 Billion for 1,300 companies → many of them profitless company that later blew up
Ø Both Spitzer and SEC are seeking information → analysts’ recommendation → that can make the conflict of interest
Ø Zamansky → seen the contract → investment banks promising 3-7% of all investment banking revenues → that they help to generate → clear proof that analyst were being paid to help the firms’ banking clients, often at the expense of investors who expected objective advice
Ø Merrill Lynch facing potential fraud claims by every retail investors who purchased any stock that Blodget & Co. may have insincerely recommended
Ø Over long run → risk bigger than legal penalties → could be new restrictions that Spitzer or other place on the way investment banks do business
Ø On May the SEC → scheduled to approve a new rules forcing analysts to limit and disclose contact with investment banker collegues
Ø It was never a secret → Analysts who work at invesatment banks often work against investors
Ø Analyst spend too much time lobbying the investors → rather than crunching number → analyst get focused on saying on what they think the client want to hear to win the vote
Ø The biggest factors now contaminating the system is compensation
Ø Small Rewards → “IT WAS THE FROSTING ON THE CAKE , NOW IT IS THE CAKE!” → for fatten their wallets
Ø Behind the Scandal → These days bankers are far more focused on short-term profits than on their long-term reputation
Ø But no matter how Wall Street Shrinks → its credibility must grow again
Ø Firms have already taken some steps → such as eliminating direct reporting by analyst to investment bankers → but Wall Street and SEC still have to make enforceable code of conduct

Foreign Ownership and Investment: Evidence from Korea

I. Introduction
Ø Korean equity market was opened to foreign investors ion January 1992 → allow foreigner to invest up to 10% of a firm stock
Ø End 1992 → reach 7% → end 2002 → reach 36% of the total market capitalization
Ø Firm’s investment depends on → the availability of internal funds
Ø The importance of financial factors in investment → higher cost of external finance → arising from → information asymmetry and agency cost → in an imperfect capital market.
Ø If financial intermediaries consider that → foreigners favor firms with → low information asymmetry → then → firms with high foreign ownership are able to raise external funds at low costs
Ø If foreign investors have better skills than domestics’, → foreign firms have less agency problems.
Ø →The cash flow sensitivity of investment → is lower in firms with high foreign ownership → than in firms with low foreign ownership
Ø Main empirical findings:
§ First, Cash-flow sensitivity of investment → significantly decreases as foreign ownerships → increases
§ Second, the effect of foreign ownership on financial constrains became stronger after he complete opening of the Korean equity market to foreigners in 1998
Ø These findings imply → open financial markets help relax financial constrains faced by firms

II. Relevant Literature and Hypothesis Formulation
Ø Firm’s investments depend solely → on the profit opportunity
Ø Firm’s investment decisions are depend on financial factors → such as the availability of internal funds
Ø Why investment is sensitive to internal funds in imperfect financial market?
§ First → focused on a lemon premium that firms must pay on external finance → the cost of external funds are higher → than that of internal funds → due to the asymmetry of information → between borrowers and lenders
§ Second → studies attribute the importance of internal funds to managerial agency problems → managers tend to spend all available funds on investment projects at their own discretion.
Ø Imperfections in financial markets influence a firm’s investments
Ø The dividend-payout ratio → as a measure of the financial constrains → faced by firms that → investment of more financially constrained firms → respond more sensitively to changes in cash flow
Ø Ownership structure → affects investment → Canadian Firms → Concentrated ownership leads to less liquidity-constraint
Ø As managers’ ownership stakes in their firms increase → investment-cash flow sensitivities also rise → however → cash flow sensitivities decrease slowly after a certain level of insider holding
Ø As financial market begin to open → developing countries have recently experienced an increase in the equity share of foreigners
Ø FDI → increase the credit constrains by bringing in capital → also reduces firm-level financing constrains
Ø Foreign investors prefer → equity shares in firms with low information asymmetry → than those with higher information asymmetry
Ø Foreigners prefer large firms with good performance, low risk, low leverage, paying low dividends, and firms with large cash positions → it is expected → this kind of firms can raise funds at low cost → because high foreign ownership → is a sign that → these firms are in good financial condition → under imperfect information.
Ø Foreign investors have a tendency → demand better corporate governance → in order to protect their investment
Ø Foreign investors → seek safe and profitability firms → where they can exert influence on corporate governance
Ø We can say → cash-flow sensitivity of investment → lower in financial owned firms → than in domestically owned firms

III. Model and Method
Ø Method
Ø Ordinary Least Square (OLS) → likely to result in biased estimated because of endogeneity and heterogeneity problems
Ø Potential differences across firms in their investment behavior may also result in a heterogeneity problem
Ø Generalized methods of Moment (GMM) → estimation is widely used for dynamic panel models → the success of this model depends → mainly on the adoption of elimination of unobserved firm effect
Ø If there are NO strong unobserved individual effects → firm can apply the GMM technique to the investment equation in levels
Ø Data and Definition of Variables
Ø Firm-level panel data → constructed from Korea Investors Service-Financial Analysis System (KIS-FAS) database → consist of 5084 observation of the 371 firms
Ø High foreign ownership based on two criteria
§ First → more than 5.88% foreign ownership
§ Second → more than upper quartile foreign ownership

IV. Empirical Results
Ø Avalability of internal funds does affects investment levels
Ø Persistence also found in a firm’s investment → from significant estimates in the lagged investment-to-capital ratio
Ø Sales play role of increasing the investment-capital ratio
Ø Financial constrains faced by firms decrease → as foreign ownership increases
Ø Since foreigners’ shareholding plays a role in diminishing information asymmetry in financial markets → firms with high foreign ownership seem to → capable of raising external funds → at lower cost.
Ø Firms with high foreign ownership → les likely to use cash flow at their discretion due to improving corporate governance system
Ø Opening of the stock market → one of the factors in the mitigation of financial constrains
Ø Liquidity constrains are reduced → in firms with low foreign ownership

V. Concluding Remarks
Ø Foreigners tend to favor with firms with low information asymmetry → conclude → higher the foreign ownerships → lower the asymmetry information
Ø Cash flow sensitivity decreases as → foreign ownership increases
Ø Foreign ownership play role → reducing the financial constrains → and improves accessibility of external financing for investment

The Effect of Asymmetric Information on Dividend Policy

Introduction
Ø Several theories exist on why firms pay dividend → based on the market imperfection
Ø The various explanation of dividend policy → classified into three categories of market imperfection → agency cost, asymmetric information, and Transaction cost
Ø Rozeff and Easterbook argue→ dividend payments may serve as a mechanism to → reduce agency cost of external equity
Ø Agency costs arise from → cost associated with monitoring managers and/or risk aversion on the part of managers
Ø The impact of dividend change announcements on share prices → indicated a positive relation between the stock price response and the sign on the announced change → because dividend convey information about current and future earnings
Ø Residual theory → firm can minimize transaction costs associated with new capital issues by restricting dividends to funds not required for investment purposes
Ø This paper will → examine an alternative explanation of dividend policy based on asymmetric information
Ø Myers and Majluf → firm can reduce underinvestment by financing investment with slack that can be accumulated through retention
Ø The higher the level of asymmetric information → the lower the dividends
Ø Miller and Rock → develop a model → higher dividends are associated with higher earnings
Ø If other things equal → value of dividend payments as a sign increases with the level of asymmetric information between the firm and its investors
Ø That’s why → the prediction of Pecking Order theory → is opposite to that provided by the dividend–signaling framework of Miller and Rock
Ø Second contribution stems → inclusion of both dividend-paying and non-dividend-paying firms
Ø One results indicate → inclusion of an asymmetric information variable allows us to draw a distinction between the two competing asymmetric information explanations of dividend policy that has nit been drawn before
Ø Firms with less asymmetric information pay higher dividends → consistent with the pecking order theory but → inconsistent with the signaling theory
Ø One more findings → Role of insider ownership in determining dividend policy appear to be more strongly relate to → asymmetric information and pecking order theory → than to agency costs
Ø First we examine → relation between asymmetric information and issue costs for a sample of seasoned equity offerings → result → issue costs increase with the level of asymmetric information
Ø Second → estimated empirical between issue costs and asymmetric information → to compute predicted issue costs for the sample of firms → to analyze dividend policy
Ø Third → examine dividend policy in the presence of these predicted issue costs → result → dividend are negatively related to predicted issue costs and are consistent → with the implication o the pecking order theory

Asymmetric Information, Testable Hypothesis, and Control Variables
§ Pecking Order Theory
Ø In the presence of asymmetric information, a firm may under-invest in certain states of nature
Ø Firm can reduce underinvestment and the resulting ex-ante loss in firm value by accumulating slack through retention
Ø To control the underinvestment problem→ firm can accumulate slack by decreasing its dividend → the dividend policy may used to control the underinvestment problem that stems from asymmetric information
Ø Pecking order theory predicts → higher level of asymmetric information → lower the dividend
§ Signaling Theory
Ø Higher dividend are associated → Higher Earnings
Ø Asymmetry pertains to current earnings and the level of investment → dividend convey information about current earnings through the sources and uses identity → indirectly serve as a signal of future earnings of the firms
Ø Firms with higher level of asymmetric information → will have to pay a higher level of dividends → to signal the same level of earnings as a firm with a lower level of asymmetric information
Ø Higher the level of asymmetric information → the higher the dividend
Ø Analyst play important role providing information to investors about the condition of the firm → The higher the number of analyst following a firm → less asymmetric information between the firms and its investors

Control Variables
§ Agency Cost of (External) Equity
Ø Dividend payments may serve as mechanism to → reduce agency cost of external equity
Ø Two forms of agency costs → arise from the monitoring of managers and from managerial risk-aversion
Ø Rozeff → dividend payment as a bonding device used to reduce agency costs → dividend should be inversely related to insider or managerial ownership
§ Growth of Investment Opportunities
Ø The size of the investment increases → underinvestment also increases → the firm now has to rely more on external sources for funds
Ø Investment problem → can be controlled by the increasing amount of slack available
Ø Book value assets – Book Value of Equity = Book value of total liabilities
Ø Book value of total liabilities + Market value of equity = Market Value of Assets
§ Cash Flow
Ø Firm with higher current earning or cash flow → will pay higher dividends
Ø Firms with higher current earnings → projected to pay higher dividend
Ø Higher cash flow from existing assets → will translate into higher dividend → as the need for slack is now lower
§ Agency Cost of Debt and Financial Distress
Ø Dividend Payments → source of conflict between the stockholders and the debt-holders of a firm and → may give rise to agency cost of debt
Ø Managers are more likely to cut dividend at the onset of financial trouble to avoid omitting them in the future
Ø Managers’ reluctance to omit dividend → may be another determinant of dividend policy when firms are in financial distress
Ø Firm with a higher likelihood of financial distress → may pay lower dividend so as to maintain a stable dividend policy and avoid omitting dividend in the future
Ø Firms with higher likelihood of financial → may pay lower dividend

Empirical Specification, Methodology and Measures for the Dependent Variable
Optimum dividend level of firms can be measured by → β vector of explanatory variables + disturbance term.
§ Dependent Variable Measures
Ø Conventional dividend yield = ratio of dividend per share → divided by → price per share
Ø Dependent variable = measured dividend yield for dividend-paying firm
Ø 0 → if for non-dividend-paying firms
§ Data
Ø Dividend yield → computed by dividing the average dividends per share by the average price per share
Ø Data contains → Dividend-Paying firms Vs. non-Dividend-Paying firms
§ Empirical Result
Ø Dependent variable is dividend yield → assumes a value of zero for non-dividend-paying firms and equals the measured dividend yield otherwise
Ø Independent variables used → insider ownership variable, analyst following, growth opportunities, cash flow measure, and dummy variable → identifies firms with higher likelihood of distress
Ø Positive coefficient on analyst following → firms with less asymmetric information → pay higher dividend → consistent with the pecking order theory but → inconsistent with the signaling theory
Ø Negative coefficient on the growth measure and the positive coefficient on cash flow measure → consistent with the predictions of the pecking order theory
Ø Positive coefficient on DIST → firms with both low cash flow and low growth opportunity → pay higher dividend
Ø Analyst following → negatively related to insider ownership
Ø Pecking order theory predicts an inverse relation between dividend and the level dividend and the level of asymmetric information
Ø Alternatively → The pecking order theory predicts a positive relation between dividend and analyst following → also implies an inverse relation between dividend and insider ownership given the inverse relation between analyst following and insider ownership
§ Dividend Policy and Insider Ownerships
Ø Indicate → dividends → unrelated to the insider ownership variable
Ø There is no relation between → dividends and insider ownership
Ø Analyst following → negatively related → to insider ownership
Ø Analyst following will be higher for firms with → lower insider ownership → imply a negative relation between them
Ø Pecking order theory predicts → inverse relation between dividends and the level of asymmetric information
Ø Pecking order theory predicts → positive relation between dividends and analyst following → implies an inverse relation between dividend and insider ownership → and inverse relation between analyst following and insider ownership
Ø The role of insider ownership in determining dividend policy → appear more strongly related to asymmetric information than to agency costs

Dividend Policy and Equity Issues: A Further Test of Pecking Order Theory
The pecking order theory suggest → firms should exhaust their internal funds → before resorting to external financing → firms that raise fund through external sources → must use a higher amount of internal funds
Pecking order theory implies → firms that issue equity → should pay lower dividend
Firms that resort to external sources for fund → attempt to first exhaust their internal fund → by paying lower dividend
§ Dividend Policy and Firm Size
Ø Positive relationship between dividend yield and size → no explanation for this relation
Ø Firm size is calculated as the logarithm of the book value of assets → results → the relation between dividends and analyst following → larger firms, which have less asymmetric information → pay higher dividend → consistent with pecking order theory
Ø Collinearity diagnostics → provide a more powerful way to detect linear dependencies among the explanatory variable → than simple pair-wise correlation → it indicate the presence of a high degree of collinearity → which appears to be degrading the estimate of the coefficient on analyst following and hence its significance
§ Dividend Policy, Asymmetric Information, and Issue Costs
Ø The pecking order theory → asymmetric information problems → exacerbate the underpricing → associated with new capital issues
Ø Consequently → firms may be reluctant → to issue equity when their stock is undervalued → and may forgo positive net present value investment
Ø Underpricing → result from the asymmetric information problem → may be viewed as one component of issue cost → associated with raising capital through external sources
Ø Issue cost can be controlled by → financing investment with slack → which can be accumulated by paying lower dividends
Ø Asymmetric information problem → adversely affect issue cost which can be controlled by → paying lower dividends
Ø The significance of analyst following in the issue cost regressions suggest that → level of asymmetric information adversely affect issue cost → which in turn are negatively related to dividends

Share Repurchase - To Buy or No to Buy

Introduction
Ø 39% of the respondents → instituted a share repurchase program → in order to improve their earnings per share numbers
Ø 28% → their companies were using buybacks as a way to distribute excess cash to shareholders
Ø 21% → reported that their companies were trying to reduce the cost of employee stock option plans
Ø 12% → adjusting capital structure was the main reason for their stock buybacks
Ø This research mission → to determine the long-term effect of stock buyback program on the company’s stock price and to access which companies benefit most from this program

Why repurchase shares?
Ø First → to increase share price → when the company’s stock undervalued by market analysis
Ø Second → to rationalize the company’s capital structure → allows the company to sustain a higher debt-equity ratio
Ø Third → to substitute share repurchase for cash dividend payouts → since capital gains may be taxed at lower rates than dividend income → a share repurchase program offers long term shareholders some major tax advantage
Ø Fourth → to prevent dilution of earnings → share repurchases can enhance a company’s growth in earnings per share → conversely prevent an EPS decrease that may be caused by exercises of stock option grants
Ø Fifth → to deploy excess cash flow → stock buybacks can be attractive alternative investment for any cash flow left over → once the company has meet its capital investment need
Ø Company that want to repurchase shares has several different options
o Conduct open market repurchases
o Tender offers → both fixed-price and Dutch auction
o Privately negotiated repurchases

Four Key Findings
Ø First → Shares Outstanding → although the company repurchase majority of its shares → there were still a small proportion of the total shares outstanding abaout 5%
Ø Second → no subtitle for dividend payouts → companies don’t seem to be using share repurchases as a substitute for dividend payments to shareholders → although the dividend payments have smaller amount than the buyback shares → the dividend payout ratios increase once the stock buyback program is over
Ø Third → Effect on Earnings Per Share → after the repurchase program → there is a significant increase in EPS growth → although not as big as company that do not repurchase stocks → so repurchasing firms are effectively closing the gap between their EPS growth rates with their industry peer that aren’t buy back stock
Ø Finally → Effect on Debt → increased by a modest amount for the sample → even though 27% of the funds used to repurchases stocks are come from theexcess operational cash flow

Guidelines for Getting Going
Ø If company considering a stock repurchase plan → CFO have to wonder whether this program really will rev-up company’s EPS growth?
Ø As general guidelines: Companies repurchase equity only under these two circumstances
o When they have excess debt capacity and → the supply of funds exceeds the demand
o When they’re underperforming in terms of → profitability and sales growth rates relative to their industry’s average
Ø Companies should avoid stock buybacks under these two circumstances
o When they’re over-leveraged and sales growth rates excess industry averages
o When both their profitability and sales growth rates excess industry average
Ø Stock buybacks also have regulations
o Volume limit on repurchases and contains a host of other procedural requirements
o Company cannot conduct a share repurchase program at the same time → it is engaging in a securities offering
o Cannot allow buybacks to exceed one quarter of the trading volume of the stock for the prior 30 days

The Value Connection
Ø Shareholder Value Based Management (SVBM) Framework → demonstrates that long-term shareholder value → created by the firm’s growth and profitability prospects from its product market positions
Ø Share repurchase program can either create or destroy value → depend on how they affect investor’s perceptions → about the firm’s long-term prospects
Ø Without a clearly expressed rationale → the company’s decision to conduct a repurchase program could be misinterpreted by investors → as a negative signal
Ø Financial executives must start their decision making by evaluating the demand for investment funds → as determined by the availability of investment opportunities
Ø Also supply of invest-able funds → determined primarily by the company’s profitability
Ø Conclusion → developing and implementing a share repurchase program is no simple task
Ø To conduct a successful buyback → must figure out how to bring the two major aspect of the job → Strategy and Finance → together in the most effective way possible

(JOB) Rolls-Royce Increases Dividend

Ø Rolls-Royce, the aircraft engine maker, raised its dividend by more than a three times → reflected its continuing confidence in future growth.
Ø Rolls-Royce is benefiting from a boom in aviation in → the Middle East and Asia.
Ø It revealed a record order book → 45.9 billion Pounds → an increase of 76 per cent
Ø The company increased the total pay-out → 35.6 per cent to 13 points following a year-long strategic financial review.
Ø Some analysts had predicted a share buy-back or special dividend of as much as 1 Billion Pounds.
Ø The decision to → rebase the dividend and commit to a progressive dividend policy subject to earnings was → "the most powerful way” → showing confidence in the future of the business
Ø However, the return to investors’ → much less than the market had expected → and the shares fells 49 points → or more than 10 per cent → to 431 points.

Relation to the other two articles:
Ø Not every investors are aware about what analyst said nowadays → investors tend to find out themselves and make their decision by their “peer groups”
Ø Investors are tend to be “the expert” of the dividend payment “games” → many company are trying to convinced investors by increasing the dividend payments → nowadays people are more suspicious for this kind of moves

Rolls-Royce increases dividend; [LONDON 1ST EDITION]

SYLVIA PFEIFER. Financial Times. London (UK): Feb 8, 2008. pg. 20

Abstract (Summary)
Sir John Rose, chief executive, said the decision to rebase the dividend and commit to a progressive dividend policy subject to earnings was "the most powerful way of showing confidence in the future of the business".
After last year's record order in-flow Sir John said the group was still seeing "order activity". In the first month of this year, Rolls-Royce took about Pounds 2.5bn worth of orders.
"This is a completely unforgiving market right now and people only want to see negatives," said Steve East, analyst at Credit Suisse. He stressed, however, that "for a company that is still cyclical to take the dividend up by 35 per cent and say that it's sustainable, that is good news."
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Full Text (423 words)
(Copyright Financial Times Ltd. 2008. All rights reserved.)
Rolls-Royce, the aircraft engine maker, raised its dividend by more than a third, a move it said reflected its continuing confidence in future growth.
The company increased the total pay-out by 35.6 per cent to 13p, following a year-long strategic financial review.
Rolls-Royce is also making a one-off cash injection of Pounds 500m into its pension fund.
However, the return to investors was much less than the market had expected and the shares fell 49p, or more than 10 per cent, to 431p.
Some analysts had predicted a share buy-back or special dividend of as much as Pounds 1bn.
Sir John Rose, chief executive, said the decision to rebase the dividend and commit to a progressive dividend policy subject to earnings was "the most powerful way of showing confidence in the future of the business".
The company needed to remain flexible, both in terms of its balance sheet and its capacity, to be able to respond to customers' demands as well as new opportunities.
It had net cash at the year end of Pounds 888m.
Rolls-Royce is benefiting from a boom in aviation in the Middle East and Asia.
It revealed a record order book of Pounds 45.9bn, an increase of 76 per cent, with nearly half - Pounds 20bn - coming from those two regions.
The company is predicting that by 2010, more than 500 aircraft in China will be powered by Rolls-Royce engines, up from 41 in 1997.
The company expects to achieve continued growth in profitability and a positive cashflow in 2008. This is in spite of a weak dollar and rising raw material prices.
After last year's record order in-flow Sir John said the group was still seeing "order activity". In the first month of this year, Rolls-Royce took about Pounds 2.5bn worth of orders.
The company reported that underlying profits rose from Pounds 705m to Pounds 800m in the year to end-December. That figure was distorted by foreign exchange hedging.
With much of its revenue in dollars, Rolls-Royce has Dollars 9.4bn of hedges in place at an average sterling exchange rate of Dollars 1.83, equivalent to 2.6 years cover.
"This is a completely unforgiving market right now and people only want to see negatives," said Steve East, analyst at Credit Suisse. He stressed, however, that "for a company that is still cyclical to take the dividend up by 35 per cent and say that it's sustainable, that is good news."Pre-tax profits fell to Pounds 733m (Pounds 1.4bn) and earnings per share were 32.9p

The Financing of Private Enterprise in China

Introduction
Chinese enterprises → relied primarily on self-financing → to Thrive → firms need increased access to → external loan and equity financing
China’s economy has undergone a fundamental change over the pas decade → from complete reliance on state-owned and collective enterprises to → mixed economy → where private enterprises play a strong role
1999 → private sector accounted only 1% of bank lending
Only 1% of private company are listed on the Capital market
Private sectors may not be able to sustain its current rate growth unless it can increase its access to financing
Financing Patterns
International Finance Corporation (IFC) → private sector arm of World Bank Group → revealed if company has 80% lack of access to finance → will be a serious problem
Chinese relied heavily on self-financing for both → start-up and expansion
More than 90% initial capital → came from → principal owners, family, start-up teams
For post-start-up investment → firms depend on internal sources → with at least 62% equity is owner’s
Public equity and public debt market → played an insignificant role
Relative importance of different sources of financing among surveyed firms → depend on firms size → Tend to become less important as firms grow larger
Share of commercial bank loans → increases with the firm size
Commercial banks → second most important source of fund → for the larger firms → but on average → Chinese banks tend to play a relatively small role
Factors affecting Access to Financing
Difficulty private Chinese firms face → financial system and the nature of Chinese private enterprise
Bank Incentives
Trough recent reforms → China has made significant progress in reducing government interference in bank lending
Bank still do not consider → a bad loan to a state-owned enterprise to be as serious as a bad loan to a private enterprise
Bank → discriminate against private sector firms → need added incentives to lend to private enterprises
Financial sector reforms focused on reducing the accumulation of nonperforming loans in the system are making banks more averse to risk
Bank concentrate on avoiding losses → show little interest in sharing of rewards of projects → that may be riskier → but have higher expected returns
Indeed → central banks requires all banks to implement → “responsibility to individuals” → credit officers personally responsible for loans → thereby discouraging them from making loans for private sector project
There are controls on interest rates and transaction fees → but still → interest rates are capped
Loans to small and m\medium-sized enterprises → allowed to be 30% higher the prescriptions rate →→ rural credit charge 50% higher
Government is expected to relax restrictions even further in preparation for China’s entry into WTO
Banks & Credit unions → creative ways → circumvent interest rate controls → requiring compensating balance and charging false late payment fees
Result → state banks charge effective interest rate
Bank Procedures
Chinese Banks → inflexible and tailored → “typical” state-owned enterprise
Applying for a loan → bureaucratic and costly process
Major obstacles to application for formal loan → Paperwork
Collateral requirement & relationship banking → make smaller firms hard to gain access to financing
Collateral Requirement
Most frequent reason for not being able to obtain a bank loan → The inability to meet collateral requirements
Legacy of public and collective ownership of land → can be a collateral → But many private firms does not have it yet
Assets can be collateral → but establishing the value of the firms → costly
Repeated and arbitrary fees → greatly reduced the incentive of small firms → to apply loans
Information Problem
Many had to present themselves as collectives or as foreign enterprises → to be allowed to operate or to obtain better treatment from the authorities
Lack of clear ownership an management structures → imposes obvius constrains on borrowing
In fact → banks are unable → to collect and process relevant information
Banks are naturally reluctant to accept financial statements → that cannot be trusted
Recently central bank → make mandatory for corporate borrowers to register in a national database
Central database more comprehensive and prevent company with poor records → getting loans

Policy Agenda for Financial Sector
Improve “bankability” → by strengthening transparency and clarifying ownership on the part of the government to establish and maintain a level playing field and to create incentives for lending to and investing in private enterprises
Strengthen Banks’ incentives to lend to private enterprises
Important step → strengthen profit incentives through private ownership and competition
The government should allow the entry of new domestic private financial institutions → which would open up entry opportunities → to foreign financial institutions
To alleviate regulatory concerns → stricter entry and prudential requirements could be applied to → new financial institutions in initial period
Private financial institutions → less likely swayed by political considerations → more likely profit oriented
New banks tend naturally focus on → younger and smaller firms
Big state-owned banks → likely to dominate the domestic financial landscape for the foreseeable future
Further Liberalize Interest Rates
Evidence suggest further liberalization of interest rates is needed to improve private firms’ access to bank loans
Most private enterprises that are able to borrow → already pay effective interest rate that → significantly higher that real one
Allow Banks to Charge Transaction Fees
Banks find → lending to private companies → carries higher unit transaction cost
Transaction fees would encourage banks to consider → more proposals from small firms, develop more service-oriented culture, promote greater transparency and better accounting standards
Develop Alternatives to Bank Lending, Such as Leasing and Factoring
Leasing and factoring → are useful ways to deal with insufficient collateral → with the enforcement of collateral
Leasing obstacles in China
Rent arrears have long been a problem
Accounting standards are unclear
Regulatory environment does not provide equal treatment with other sources of capital investment financing
Funding is a perpetual concern
Factoring is a way to improve a company’s liquidity by → substituting a cash balance for book debt →→ New contract law → make it possible
Create a Framework for the Development of Private Equity Markets
Offshore venture funds → appear to be a far more important source of capital for startups in China → than domestic
Corporations must abide by the company law → does not permit more than 50% of :Industrial Investment Funds” to be invested in subsidiaries or other legal entities
Legal instruments → must be develop
Legal organization of such funds
Use of a fund manager
Need for trustees → to protect investors from adverse actions of the fund managers
Tax treatment → to avoid double taxation
Improve Access to Public Equity
Availability of exit mechanism is → a key condition for development of private equity markets
Evolution of private equity markets → depends to a large extent on the state of the public equity market
Chinese Securities Regulatory Commission announced → quota system on listings → would be abolished
Private firms would have greater opportunity to acquire long term funding through the equity market

Hindsight and Foresight about Safe and Sound Banking

Robert A Eisenbeis. Economic Review - Federal Reserve Bank of Atlanta. Atlanta: First Quarter 2007. Vol. 92, Iss. 1/2; pg. 124, 5 pgs
Abstract (Summary)
The author reflects briefly on several different issues discussed in the study "Perspectives on Safe and Sound Banking." He focuses on the issues that were probably, in hindsight, overemphasized, those that were perhaps underemphasized, and those that were not fully appreciated but subsequently turned out to be important. A key issue in the finance literature and in the study was the desirability of gearing deposit insurance to risk and using options pricing theory to price that risk appropriately. Over the past twenty years the financial system has evolved in ways that have changed its structure and risk profiles, significantly changing the way that institutions take on risk and control their risk exposures. The author notes several issues that would be appropriate to consider as potential agenda items should a similar study be undertaken in the future. These include: 1. accounting reform, 2. identity theft and privacy issues, 3. shrinking role of intermediaries and the growth of capital markets, 4. consolidation risks, and 5. role of the lender of last resort.
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Full Text (2463 words)
Copyright Federal Reserve Bank of Atlanta First Quarter 2007
After hearing both the papers prepared for this conference and the discussions that followed the presentations, I want to reflect briefly on several different issues discussed in Perspectives on Safe and Sound Banking. I plan to first focus on the issues that were probably, in hindsight, overemphasized, those that were perhaps underemphasized, and those that were not fully appreciated but subsequently turned out to be important. Finally, I want to raise issues that should be on any agenda for the future.
Issues Overemphasized in the Study
Risk-based deposit insurance. A key issue in the finance literature and in the study was the desirability of gearing deposit insurance to risk and using options pricing theory to price that risk appropriately. While risk-based premiums were adopted in the Federal Deposit Insurance Corporation Improvement Act (FDICIA), implementation has proved to be problematic. Premiums are arguably too low and are collected only from more risky institutions. Beyond this, however, are two issues that limit risk-based pricing as a useful means to control risk taking. The first is the realization that appropriate pricing depends upon not only the ability to measure risk but also to close an institution promptly when it becomes insolvent. Second, effective risk monitoring and control involves a trade-off between the costs of monitoring a bank's risk exposure continually against both the expected costs of that monitoring and expected losses should an institution become insolvent between examinations or inspections.
Revisions to regulatory agency structure and lender of last resort. The report recommended several changes in bank regulatory agency structure, including creating a competing deposit insurance option to be administered by the Office of the Comptroller of the Currency, parceling out lender-of-last-resort administration to the insurance agencies using funds drawn from the Federal Reserve, and taking the Federal Reserve out of the prudential supervision area. It probably is not practical to consider such reforms, given that the United States has still not seen fit to combine depository institution insurance funds, and only the central bank can provide credible lenders-of-last-resort funds. However, two issues are important. First was the suggestion that the insurance funds should have a primary role in banking supervision because they have the strongest incentives to monitor bank risk exposures. In the United States, the Federal Deposit Insurance Corporation (FDIC) is in the first loss position should a failure occur. It also, under FDICIA, is acting as the agent for other banks that stand to lose should FDIC funds be exhausted. Second, this view on supervision stands in stark contrast to how deposit insurance and supervisory responsibilities are apportioned in the European Union, where generally deposit insurers are not involved in supervision.
Issues Underemphasized in the Study
Prompt corrective action. While the study did argue that institutions should be closed via a prompt corrective action (PCA) scheme before net worth fell to zero, the importance of PCA combined with structured early intervention and resolution (SEIR)-a concept that evolved later-as perhaps the best way to protect taxpayer interests was not fully realized. These concepts and their link to banking soundness have proved important not only in the United States, where they have been codified under FDICIA, but also as a framework for dealing with supervision and prudential soundness issues in a cross-border banking world.
Accounting issues. The report argued for market-value accounting, which, when combined with PCA and SEIR, is necessary to protect the taxpayer from the costs of regulatory forbearance. The importance of market-value accounting, or at least the need to calculate the market value of banks' equity, has yet to gain much traction in regulatory circles. Much attention has been given to the problem of implementing market-value accounting. But more focus has been directed to capital adequacy, which turns out to be diverting the attention of regulatory agencies from the fundamental problems of measuring net worth. Putting the valuation issue front and center, especially in a global environment with more and more derivatives and other exotic financial assets coming together, looms as the critically important-but as yet unrecognized-problem for banking supervisors.
Controlling regulatory incentives. One of the key problems in the past has been the tendency of regulatory and supervisory agencies to engage in forbearance toward troubled institutions. FDICIA requires the FDIC to minimize failure costs to taxpayers and requires disclosure and explanations when losses do occur. However, banking regulators-with differing mixes of goals and responsibilities-can still be faced with conflicts of interest and agency problems, which can sometime lead to less-than-optimal decisions in dealing with troubled institutions. Indeed, Eisenbeis and Wall (2002) have shown that many institutions are still closed with losses to the insurance fund, suggesting that PCA is not always having its desired outcome. Kane, for example, has devoted considerable attention to controlling regulatory incentives, which remains a problem both in the United States and abroad (see Hovakimian, Kane, and Laeven 2003; Kane 1988, 1989, 1991, 2000, 2003, 2006).
Consolidated risk management. The report argued that regulatory approaches that attempted to separate risk taking within a bank holding company structure- either to protect bank subsidiaries from risk taking in sister banks or from risks in non-banking subsidiaries-were fruitless. Subsequent developments show that increasingly banking organizations are consolidating risk management and operations functions so that subsidiaries and affiliates are not operationally independent of each other. This trend suggests that the report's conclusion about how conceptually to approach the supervision of complex institutions rings truer today than ever and should be an important focus of banking supervision and risk control going forward.
Underappreciated Issues
Over the past twenty years the financial system has evolved in ways that have changed its structure and risk profiles, significantly changing the way that institutions take on risk and control their risk exposures. Three such developments were underappreciated by authors at the time in terms of either the speed or significance with which they might affect bank safety and soundness. The first was the removal of McFadden Act restrictions on interstate banking and the speed and manner in which the banking system structure changed. Within a few short years, bank mergers significantly reduced the number of banking organizations, increased the size of the largest institutions, and concentrated their headquarters, principally in New York and Charlotte, North Carolina. The events of 9/11 in particular exposed the potential vulnerability of such concentration and the risks to a smooth functioning of our financial markets should one or more large institution experience financial difficulties.
The second underappreciated development was the spread of computer-related technologies in combination with the explosion of intellectual technologies in the form of financial engineering. This development radically changed both institutions' risk profiles and their ability to evolve and price assets and liabilities that had previously been provided only in bundled form or not at all. The resulting decoupling of the apparent risks-through the use of new derivative instruments-associated with given assets and liabilities traditionally inferred by looking at balance-sheet measures or direct inspections via the examination process no longer necessarily reflects an institution's true riskiness.
The third development was the growth and expansion of truly global institutions, which now suggest that the origins of risk and vulnerabilities are not only more complex but may oftentimes be more associated with developments in other parts of the world rather than in domestic markets. As a result, better communication, coordination, and sharing of information with non-U.S. regulators are now a necessity. Effective PCA and SEIR procedures to close institutions before net worth becomes negative combined with bankruptcy procedures that empower regulators to close institutions and resolve them promptly hold the greatest promise to limit systemic risk problems and to control financial crises.
Concluding Remarks and Some Key Issues for the Future
Having reflected upon the study and the papers prepared for the conference, I note several issues that would be appropriate to consider as potential agenda items should a similar study be undertaken in the future. The following is a brief list of concerns, in no particular order of importance.
Accounting reform. As mentioned earlier, the key to risk monitoring and control is effective valuation of net worth, which requires not only the ability to value assets and liabilities but also to appropriately consider the interactions among subsidiaries and affiliates within complex organizations and to understand the implications for valuation posed by new derivative instruments and contingent liabilities.
Identity theft and privacy issues. As financial markets become more global and dependent upon electronic transactions, the speed with which funds can be withdrawn from individuals' accounts and from entire banking entities is accelerated. Finding ways to both verify and protect individuals' identities is crucial to ensuring confidence in electronic payments media. There may be an important role for regulators in this sphere that has yet gone unexplored.
Shrinking role of intermediaries and the growth of capital markets. Many countries are now producing financial stability reports, and increasingly these reports are focusing on the risks and implications of potential systemic problems emanating from financial markets rather than from financial institutions. This concern is a natural reflection of the growing role that capital markets play in financial intermediation relative to financial institutions. Attention now needs to turn to what role regulators and central banks may need to play in dealing with such risks as well as the need to better understand cross market and cross-institution linkages that arise from the trading of instruments, such as derivatives, which now separate out some of the risks that typically had been embedded in financial instruments and loans.
PCA and SEIR as ways to enhance Basel I and Basel II initiatives. Present Basel I and Basel II initiatives have concentrated on the definition and measurement of capital for regulatory purposes and ways to employ them to limit bank risk taking. The benefit of this exercise has been that institutions are now more systematic and concerned about their internal risk measurement schemes and capital allocation methods. Going forward, attention should be given to how to deal with troubled institutions as their capital positions deteriorate and the role that PCA and SEIR might play to limit the negative spillover effects of failure and to better protect the taxpayer from potential liability should major institutions fail and exhaust their deposit insurance funds.
Consolidation risks. The relaxation of interstate banking restrictions and the resulting consolidation of the banking industry has resulted in more concentration in U.S. banking, with most of the nation's largest organizations headquartered in either New York or Charlotte. Should one of these large institutions experience financial difficulty, not only would the prompt resolution of such an institution be extremely difficult, but also the potential drain on the FDIC fund could be enormous because of the large size of these mega-institutions. Additionally, the experience of 9/11 has shown that certain events can actually close down U.S. financial markets and institutions. The concentration of our largest institutions reduces the geographic diversification that our banking system once had. So close attention now needs to be paid to how regulators and the Federal Reserve would respond to a similar event and how we can best ensure that our markets and institutions are robust.
Role of the lender of last resort. As risks to the smooth functioning of the financial system and markets are increasingly likely to be associated with liquidity problems or shocks to particular capital and instrument markets rather than to risks coming from banking organizations, additional consideration should be given to what role, if any, the Federal Reserve should play as lender of last resort in limiting the spread of these risks. In particular, what channels should be employed to provide liquidity? To whom should this liquidity be available? Would basic open market operations be sufficient to cushion markets? What role should central banks generally play in dealing with market liquidity shocks that are transnational in origin?
Cross-border banking. Cross-border banking is growing, and U.S. banking organizations are playing an increasingly important role in the financial systems and markets of other countries. At the same time, most of the world's largest banks are now conducting significant operations in the United States. As a result, these institutions are now faced with myriad different regulatory regimes, regulators are increasingly dependent upon their counterparts in other countries for information, and the failure of such institutions will have spillover effects in not only their domestic economies but perhaps even greater implications for financial systems that are hosting them (see Eisenbeis 2006; Eisenbeis and Kaufman 2005, 2006). Regulators need a better understanding of how to measure and monitor the risks that these institutions pose as well as to seek ways to harmonize their legal, bankruptcy, regulatory, and supervisory regimes.

JOB - Hindsight and Foresight about Safe and Sound Banking

Introduction
This paper → "Perspectives on Safe and Sound Banking."
Focus on the issues that were probably, in hindsight, overemphasized, those that were perhaps underemphasized, and those that were not fully appreciated but → subsequently turned out to be important.
Finally, I want to raise issues that should be on any agenda for the future
Issues Overemphasized in the Study
Risk-based deposit insurance
A key issue in the finance literature and in the study was → the desirability of gearing deposit insurance to risk and → using options pricing theory to price that risk appropriately
Risk-based premiums were adopted → in the Federal Deposit Insurance Corporation Improvement Act (FDICIA) → Premiums are arguably too low and are collected only from more risky institutions
Two issues that limit risk-based pricing as a useful means to control risk taking.
First → realization that appropriate pricing depends upon not only the ability to measure risk but also to close an institution promptly when it becomes insolvent.
Second → effective risk monitoring and control → involves a trade-off between the costs of monitoring a bank's risk exposure
Revisions to regulatory agency structure and lender of last resort
The report recommended several changes in bank regulatory agency structure
Creating a competing deposit insurance option to be administered by the Office of the Comptroller of the Currency
Parceling out lender-of-last-resort administration to the insurance agencies using funds drawn from the Federal Reserve
Taking the Federal Reserve out of the prudential supervision area
Two issues are important.
First → suggestion that the insurance funds should have a primary role in banking supervision → because they have the strongest incentives to monitor bank risk exposures.
Second → this view on supervision stands in stark contrast to how deposit insurance and supervisory responsibilities are apportioned in the European Union → where generally deposit insurers are not involved in supervision
Issues Underemphasized in the Study
Prompt corrective action (PCA)
PCA combined with Structured Early Intervention and Resolution (SEIR) → perhaps the best way to protect taxpayer interests → was not fully realized
Accounting issues
Report argued for market-value accounting → when combined with PCA and SEIR → is necessary to protect the taxpayer from the costs of regulatory forbearance
Much attention has been given to the problem of implementing market-value accounting → But more focus has been directed to capital adequacy → which turns out to be diverting the attention of regulatory agencies → from the fundamental problems of measuring net worth
Controlling regulatory incentives
One of the key problems in the past → the tendency of regulatory and supervisory agencies to engage in forbearance toward troubled institutions
FDICIA requires the FDIC to minimize failure costs to taxpayers and requires disclosure and explanations when losses do occur.
However, banking regulators-with differing mixes of goals and responsibilities → can still be faced with conflicts of interest and agency problems → which can sometime lead to less-than-optimal decisions in dealing with troubled institutions
Consolidated risk management
Regulatory approaches → attempted to separate risk taking within a bank holding company structure –either to protect bank subsidiaries from risk taking in sister banks or from risks in non-banking subsidiaries– were fruitless
Increasingly banking organizations are consolidating risk management and operations functions → subsidiaries and affiliates are not operationally independent of each other → supervision of complex institutions rings truer today than ever → should be an important focus of banking supervision → risk control going forward
Underappreciated Issues
Financial system → evolved → changed its structure and risk profiles → significantly changing the way that institutions take on risk → and control their risk exposures
Three such developments were underappreciated
First → removal of McFadden Act restrictions on interstate banking and the speed and manner in which the banking system structure → changed
Bank mergers significantly reduced the number of banking organizations
Increased the size of the largest institutions
Concentrated their headquarters especially in New York
Second → The spread of computer-related technologies in combination with → explosion of intellectual technologies in the form of financial engineering → This development radically changed both institutions' risk profiles → their ability to evolve → and price assets and liabilities that had previously been provided only in bundled form or not at all
Third → The growth and expansion of truly global institutions → which now suggest that the origins of risk and vulnerabilities are not only more complex → but may oftentimes be more associated with developments in other parts of the world rather than in domestic markets. → As a result, better communication, coordination, and sharing of information with non-U.S. regulators are now a necessity
Concluding Remarks and Some Key Issues for the Future
→ Several issues that would be appropriate to consider → as potential agenda items → should a similar study be undertaken in the future
Accounting reform
The key to risk monitoring and control is effective valuation of net worth, → which requires not only the ability to value assets and liabilities → but also to appropriately consider the interactions among subsidiaries and affiliates → within complex organizations → and to understand the implications for valuation posed by new derivative instruments and contingent liabilities
Identity theft and privacy issues
Finding ways to both → verify and protect individuals' identities → crucial to ensuring confidence in electronic payments media. There may be an important role for regulators in this sphere that has yet gone unexplored
Shrinking role of intermediaries and the growth of capital markets
Attention now needs to turn → what role regulators and central banks may need to play in dealing with such → risks as well as the need to better understand cross market and cross-institution linkages → that arise from the trading of instruments → such as derivatives → which now separate out some of the risks that typically had been embedded in financial instruments and loans
PCA and SEIR as ways to enhance Basel I and Basel II initiatives
Basel I and Basel II initiatives → the definition and measurement of capital for regulatory purposes → and ways to employ them to limit bank risk taking.
The benefit of this exercise → institutions are now more systematic and concerned about their internal risk measurement schemes and capital allocation methods
Going forward → role that PCA and SEIR → limit the negative spillover effects of failure → and to better protect the taxpayer from potential liability
Consolidation risks
Relaxation of interstate banking restrictions → and the resulting consolidation of the banking industry → resulted in more concentration in U.S. banking → most largest nation's organizations headquartered in → New York or Charlotte
Should one of these large institutions experience financial difficulty → not only would the prompt resolution of such an institution be extremely difficult → but also the potential drain on the FDIC fund → could be enormous → because of the large size of these mega-institutions
Role of the lender of last resort
Risks → of the financial system and markets are increasing → with liquidity problems → risks coming from banking organizations → Federal Reserve should play as lender of last resort in → limiting the spread of these risks
Cross-border banking
U.S. banking organizations are playing an increasingly important role in the financial systems and global markets + world's largest banks are now conducting significant operations in the United States =
these institutions are now faced with myriad different regulatory regimes
regulators are increasingly dependent upon their counterparts in other countries for information
failure of such institutions will have spillover effects in not only their domestic economies

Pecking Order or Trade-Off Hypothesis? – Evidence on the Capital Structure of Chinese Companies

Introduction
Finance Theory offers 2 broad competing models → determine the capital structure of firm → Trade-off theory and pecking theory order
Trade-off theory states → value-maximizing firm will pursue an optimal capital structure by considering the marginal costs and benefits of each additional unit of financing → equates these marginal cost and benefits
Benefits of debt → tax advantage, reduced agency cost of FCF
Cost of Debt → increased risk, increased monitoring, and contracting cost associated with higher debt levels
The pecking order hypothesis argue → asymmetric information creates a hierarchy of cost in the is of external financing which is broadly common to all firms
New investment are financed first by retention → then by low-risk debt followed by hybrids like convertibles. → equities only as the last resort
Trade-off → large equity issues of low-leverage firms → better
Pecking order → the negative impact of profitability on leverage → better
Reason might expect firms in developing and transition economies (DTEs) to have different financing objectives from their counterparts
First → many private firms in the DTEs were originally state enterprises and carry different goals and corporate strategies from this heritage → corporate strategy is a significant determinant of capital structure → basic goals of the company
Second → Capital markets are less developed in the DTEs → it is typically a narrower rage of financial instruments available and a wider range of financial countries
Finally → accounting an auditing standards in DTEs tend to be relatively lax
Singh & Hamid → Firms in developing economies rely more heavily on equity than n debt to finance growth than do their counterparts in the industrial economies
Difficulties in distinguishing between trade-off and pecking order → because many determining variables are relevant in both models
This paper → studies the determinant of capital structure decisions → of Chinese companies → China is of interest for several reason → but particularly → because it is in unique position of being both → developing economy and transition economy
Huang and Song (2002) find → correlation between leverage and these characteristics in Chinese state-controlled listed companies → surprisingly similar to what have been found in another country
Huang and Song also → static trade-off model explains the capital structure of Chinese listed companies better than the pecking order hypothesis
Hypotheses
→ Fama and French (2002) emphasize → many of the variables held to determine leverage under trade-off or pecking order theories are common to both theories
→ in present test → three related aspects of corporate financing where trade-off and pecking order theories give different predictions are examined:
Determinants of Leverage → profitability, size, growth
Since less profitable firms → provide low shareholders return → greater leverage → increase bankruptcy risk and cost of borrowing → will lower shareholder returns still further
Low shareholders returns will also limit equity issues → therefore → unprofitable firms facing a positive NPV investment opportunity → will avoid external finance in general and leverage in particular
Thus Trade-off theory predicts a positive relationships between leverage and profitability
Baskin (1989) regresses current leverage on current profitability → will necessarily result in a decrease in current debt given investment and dividends
The study also controls → firm size → help discriminate between trade-off and pecking order theories
Warner (1977) argues → that there are economies of scale in bankruptcy → implying that the agency cost of debt → will be lower for larger companies
The converse argument is that firm size is a proxy for information asymmetries between the firm and the market
Larger the firms → more complex its organization → higher cost of asymmetries → and more difficult to raise external finance
Leverage and Dividends
Pecking order theory does not provide a distinctive theory of dividend → but the theory can be combined with the Lintner dividend model (1956) → to generate predictions for the impact of dividend on leverage
Pecking order theory implies → firms with higher past dividends → will have less “financial Slack” → and therefore higher leverage → because they require more external funds
Baskin (1989) → a significant positive relationship between the past dividend rate an current leverage supports the pecking order hypothesis
Pecking Order or Trade-off Hypothesis
Asymmetric information may cause rejection of profitable investment opportunities → because of the cost associated with rising external finance
Unlike trade-off theory → this implies the existence of direct links between asset growth and financing
The asymmetric information which lies behind pecking-order theory implies → larger firms are less transparent than smaller firms
Data and Methodology
China is in transition form a planned economy to → market economy and continuous to be characterized by a fragmented capital market, fragile banking systems, poorly specified property rights and institutional uncertainty
Most listed companies were originally state-owned enterprises, and privatizations has been incomplete → because the state often retaining a controlling share
Firms could partially disclose, distort, and even forge information for transaction or taxation purposes → with low risk of being caught
China’s accounting system is now being gradually harmonized with international Financial Reporting Standards (IFRS)
January 1st 2001 → new Accounting System for Business Enterprise implemented → All listed companies were requires to follow a enforcement procedures → but for smaller companies remain problematic
Data Covering China’s top 50 listed companies for the period 2001-2003 → the listings based on total assets, income from main business, net profit, and market value
Moreover → the study checked for the robustness of the underlying models by carrying out cross-equation test for parameter equity as between the two years of the estimated model
Two measures of leverage
First → wide measure → the ratio of total liabilities to total assets → commonly used in leverage studies → this suggest that trade credit given should be deducted from total assets
Second leverage measures → account receivable are deducted from total assets
Two other variables → defined in standard ways
First → measuring profitability (ROA) → one should ideally use the ratio of operating income to operating assets → rather than total assets
Second → dividend are scaled by book equity rather than the market value
Chinese share price were very volatile in this period and use of the dividend yield would have created distortions in the dividend measure in the cross-section
It is difficult to compare → Chinese with other countries → because of the substantial variations in the applications of accounting standards in China
Results
In general→ model 1 performs well as it mostly explains more than 50% of the cross-sectional variation in leverage
Profitability mostly has a negative and generally significant coefficient irrespective of whether it is lagged in the regression → when larger profitability is entered on its own → negative and significant → robust support for pecking order theory
The performance of Interaction between investment and financing → rather less satisfactory
Dividends and size → negative but not significant → consistent with pecking order theory → on the other hand → positive sign on leverage are more consistent with → trade-off theory
Finally → results of parameter stability test → emphasized that there are severe test because of the accounting changes between 2002 and 2003 → the results show that there is some degree of stability in the parameter across time periods
Conclusion
This study aims → Shed light on the empirical debate between the trades-offs and pecking order theories in → Chinese companies.
Main findings:
First → Significant negative correlation between → leverage and profitability
Second → Significant positive correlation between → current leverage and past dividends → although at lower significant level
Third → Investment model is inconclusive since → an insignificant negative correlation between → growth of investment and the rate of past dividends
Fourth → There is some degree of stability in the parameter values
The Most important finding
→ Surprisingly simple and conventional model as capable of explaining a significant proportion of → cross-sectional variation in → leverage among Chinese companies
Overall → results provide → tentative support for the pecking order hypothesis → demonstrate that a conventional model of corporate capital structure → can explain the financing behavior of Chinese companies

Tie Your Capital Budget to Your Strategic Plan

Otherwise you will spending money for the wrong projects

Introduction:

§ Some directors who were conscious of their responsibilities as stewards of corporate assets, their responsibilities for internal control, and their responsibilities to the third parties (investors and creditors) hadn’t considered the relationship of capital acquisitions to the strategic plan.

§ Corporate financial professionals need to recognize that capital asset decisions are the most irrevocable long-rang activities because they:

o Involve significant corporate funding

o The least flexible in terms of changing the strategic directions of the business

o Least flexible for conversion into more liquid assets

o May geographically impact the long term raw material supply capabilities of the business

o May geographically impact the business’s long term customer access

o Involve decisions about assets that are unique to the company

Defining Strategic Plan

Strategic Plan must be a living document that:

§ Managers keep on their desk and refer to frequently, perhaps even daily

§ Is updated when events occur, not because time periods expire

§ Requires management explanations when its projections aren’t met

§ Represents management’s philosophy of managing with a planning process.

§ Reflects the corporate leadership’s visions of the company’s future

§ Must be shared with all corporate stakeholders, employees, ad even customers and vendors

§ Supported with individual functional plans developed by the business units

§ Uses a systems approach to show how the functional plans interact with the overall strategic plan

§ Recognize the company financial reporting system as a way to measure the company’s progress in implementing the strategic plan

§ Constrains objectives → Should be accomplished in a given time frame

§ Identifies the strategies

Strategic plan should focus:

§ First, on the customer’s needs

§ Second, on the business’s capabilities

§ In order to meet those needs with its products and services

Building the Plan

§ Begins with a corporate mission statement defining the company’s purpose and where the business wants to be in the future and how to get there

§ Identifies guidelines for targeting the corporate market:

o Customer need in particular market

o Customers’ level of education and income

o Customers’ consumption habits

o Potential mix of products and services

o Customers today and tomorrow

§ Identifies the corporate organizational features:

o Its projected size and potential for growth

o Its resources and capabilities

o An analysis of its physical plant capabilities

o An analysis of its technology development

o Review of the staff support equipment in the planning period

o Use of there resources in achieving corporate goals

Managing the Assets

The stages of assets management are the acquisition, maintenance, and dispositions of plant and equipment

1. Companies acquire new physical assets when operating management determines the plant facilities are inadequate to support corporate needs for growth
2. management usually concerned with just the level of expense and its immediate effect on net income rather than the long-term economic viability of the assets
3. Disposition of assets rarely gets proper attention. → “We already own it, so use it”

Measure the Effectiveness of the Program

§ Periodically review all capital asset acquisition project to make sure you still need them → not valid anymore → Consider about the customer → still purchase or not

§ After compete acquisition, review the project to see the initial projections were on target → if not → need to take steps to improve the process → making future projections

§ Continuously review all capital acquisition expenditures, large and small → make sure all the assets are being acquired → according the strategic plan or not.

The Capital Budget

§ Capital budget is the portion of the strategic plan → selects which assets should acquire and that allocates available resources among the proposed ideas, projects, and product → based on quantitative and qualitative evaluations → determine the best investment for the company’s future

§ Corporate decision-making process and has four interdependent steps:

1. defining and communicating a firm’s long-range and strategic plans and goals

2. developing a system that permits the olderly gathering and ranking of investment proposals

3. determining the accuracy of the estimates that will be used in the estimated rate of return calculations

4. determining and assigning level of risk probabilities to each investment proposals

§ Classical concept company will accepts investment proposals up to that point where marginal cost equal revenues

§ But since you can’t accept all capital investment proposals, need to rank them based on some mathematical standard and keep going until there is no fund left to invest.

Effective Implementations is Key

§ Driving force of any strategic plan is its effective implementation

§ Once you’ve developed the corporate strategic plan assumptions, the next step is to merge this information into the various functional plans, and link all short-terms and long-terms plans

§ The capital budgeting program provides a foundations for the overall strategic operating plan with its view of future economic benefits

§ The decision making factors are:

1. Time Value of money

2. The Cost Of Capital

The Inherent Risk of each projects / proposals