Fluent Essays

Please check the attached documents S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 5 A Quarterly Journal MNC Subsidiaries vs Domestic Firms Pankaj M. Madhani Key Words : Corporate governance, Disclosure, Clause 49, MNC subsidiaries, Globalization, Domestic firms A b s t r a c t Dr. Pankaj M. Madhani Associate Professor ICFAI Business School (IBS) IBS House, Near Science City, Ahmedabad – 380060, Gujarat. Email: [email protected] Mobile No: 9662122075 irms having multinational presence such as subsid - iaries of Multinational Corporations (MNCs) have their parent firm in other country, have operations in more than one country and may also be listed in the host country. Such subsidiaries of MNCs are influenced by the parent firm in home country to a great extent. As such, host country has domestic firms originated and listed in the host country as well as MNC subsidiaries, operated and listed in the same legal institutional environment. As the regulatory environment in the host country is the same for both groups i.e. domestic firms and subsidiaries of MNCs, it is possible that subsidiaries of MNCs internalise some aspects of disclosure practices of their parent company. MNCs subsidiaries operate across different countries with different corporate governance regimes, which will often deviate from corporate governance practices in the MNC home country. MNCs have to thus manage multiple economic, legal, political and cultural environments externally as well as complex networks of knowledge and This research examines the impact of foreign-ownership on the corporate governance and disclosure policies of firms. MNCs operate across different countries with different corporate governance regimes, which will often deviate from corporate governance practices in the home country of MNCs. Thus MNCs have to manage multiple economic, legal, political and cultural environments. This paper aims to analyze difference in corporate governance and disclosure practices among firms owned by foreign owner (MNC subsidiaries) and local owner (domestic firms). These research findings suggest that subsidiaries of MNCs are no better in disclosure practices than domestic Indian firms. A b s t r a c t F S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 6 A Quarterly Journal resource flows internally (Volkmar, 2003). The question is whether firms with foreign ownerships have better behavior in their disclosure policies compared to domestic firms. Hence, this research intends to investigate empirically whether MNC subsidiaries have better corporate governance and disclosure policies compared to domestic firms listed in India.Using firms across different sectors listed in Bombay Stock Exchange (BSE), this research study aims to analyze difference in corporate governance and disclosure practices among firms owned by foreign owner (MNC subsidiaries) and local owner (domestic firms). The findings can shed light on the governance and disclosure practices of MNC subsidiaries and domestic firms, in legal institutional environment of India. Corporate Transparency and Disclosure: Key Drivers Good practices of corporate governance are now documented in most country codes. These codes commonly stress the need for transparency in financial and non- financial disclosures, due board processes and information systems, compliance with legal and regulatory requirements, accountability to various stakeholders, among others (Baxi, 2005). Corporate transparency plays crucial role in reducing the information asymmetry between firms and their stakeholders (Durnev et al., 2009). It also allows stakeholders to monitor performance and contractual commitment of firms (Bushman and Smith, 2001). Hence, market regulators enact numerous rules and codes to ensure timely and accurate disclosure of information by listed firms. As such corporate transparency refers to the disclosure of firm specific information to outside constituents of the firm and is an integral part of corporate governance practices. Disclosure may be considered the foundation of any system of corporate governance (Cadbury, 1999). Prior research has shown specific benefits that encourage voluntary disclosure of information through better corporate governance. These benefits translate into a reduction of the information asymmetry problems as a result of the separation of ownership and control of firms (Lev, 1992). Also, firms that opt to disclose information beyond the standard requirements reap benefits such as reductions in capital and debt costs, greater analysts’ cover or an increase in the liquidity of company securities (Glosten and Milgrom, 1985). Disclosure of timely, accurate, and relevant information, thus, enables shareholder to evaluate the management’s performance by observing, how efficiently the management is utilizing the firm’s resources in the interest of the principal. Corporate governance is not just about the process but it is also about the way firms are held accountable mainly via “financial reporting.” Corporate governance have significantly focused on the relationship between the management of firm and the Board of Directors particularly on separating these two functions for effective professional management and hence may lead to greater transparency. The Board members usually may not get enough time and the management of the firm has to manage the day-to-day affairs. So the role of corporate governance becomes even more pertinent. The Cadbury Report (1992) recommends the Board of Directors to pay a great attention to the highest level of disclosure. As shown in model of Figure 1, lack of accountability of the Board of Directors and inadequate or minimal information flow to the shareholders result in weak controls. Figure 1: Corporate Governance System (Source: Model developed by author based on Montgomery and Kaufman, 2003) On the one hand, financial reporting constitutes an important element of the corporate governance system. In fact, some failures of corporate governance may be reduced by an adequate financial reporting system. On the other hand, some problems of the financial reporting system find their origin in deficiencies of the system of corporate governance (Whittington, 1993). The effective financial reporting may play a key role improving the soundness of the corporate governance system. One of the key functions of the financial reporting system is to limit top management’s discretion, and hence constraining top management to act in the shareholders’ S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 7 A Quarterly Journal interest (Jensen and Meckling, 1976; Watts and Zimmerman, 1978), or, broadly speaking in a wider perspective, in the interest of all the strategic corporate stakeholders. However, it should also be noted that the quality of information produced by the financial reporting system is fundamental for a corporate governance system to be effective. Disclosure is one of the fundamental goals of the financial reporting system. Transparency is the timely and adequate disclosure of the performance of the company and its corporate governance practices related to its ownership, board, management structure, and processes. A system of corporate governance needs a good level of disclosure and an adequate information to eliminate (or at least reduce) information asymmetries between all parties, making corporate insiders accountable for their actions. According to Baek et al. (2009) “all the relevant information should be made available to the users in a cost-effective and timely way.” Annual reports are published by firms as a medium for communicating both quantitative and qualitative corporate information to shareholders, potential shareholders (investors) and other users (Whittington, 1993). Although, such publication of an annual report is a statutory requirement, firms normally voluntarily disclose information in excess of the mandatory requirements. Hence, annual reports are important documents for assessing and analyzing the company performance in regard to corporate governance and disclosure standard/standards as well as compliance. Communication of corporate disclosure via annual reports is a very important aspect of corporate governance in the sense that meaningful and adequate disclosure enhances good corporate governance (Bhasin and Reddy, 2011). Literature Review Corporate governance is defined as an institutional arrangement that not only addresses the agency problem between shareholders and managers of the firm, but also provides the context for the decisions taken by the top management of the firm. In this context, the fundamental objective of a corporate governance framework is to identify a basis for strategic co-operation between shareholders and managers of the firm such that the agency problem is reduced and a basis for decisions that promote the competitiveness of the firm is provided (Sinha, 2006). As La Porta et al.(1998) argue, good corporate governance is needed for better access to external financing at lower cost. Good corporate governance is a key driver of sustainable corporate growth and long-term competitive advantage (Madhani, 2007). Firms, across the globe, recognize that there are economic benefits to be gained from a well-managed disclosure policy. This shows that firms in need of a good deal of external financing, such as rapidly growing firms, have an incentive to improve their disclosure and corporate governance. A detailed and structured system of disclosure enables investors to understand, and obtain accurate and reliable information of companies in order to make better investment decisions (Ho et al., 2008). Some research studies have shown that with increased corporate disclosure, firms experience a reduction in cost of equity capital (Botosan and Plumlee, 2002), as well as, the cost of debt (Sengupta, 1998). Similarly, Healy et al. (1999) found a beneficial increase in the firm’s stock liquidity and performance. Moreover, information disclosure in itself is a strategic tool, which enhances a company’s ability to raise capital at the lowest possible cost (Lev, 1992). Several studies examine Indian corporate governance generally. Khanna (2008) reviews the development of corporate governance norms in India beginning from independence era. World Bank (2005), Sarkar and Sarkar (2000), and Mohanty (2003) examine how firm-level governance influences the behaviour of institutional investors, or vice-versa. Mohanty (2003) finds that institutional investors own a higher percentage of the shares of better-governed Indian firms. This is consistent with research in other countries (Aggarwal et al., 2005; Ferreira and Matos, 2008). Bhattacharyya and Rao (2004) examine whether adoption of Clause 49 (an important set of governance reforms in India) predicts lower volatility and returns for large Indian firms. Black and Khanna (2007) conduct an event study of the adoption of Clause 49 and report positive returns to a treatment group of large firms (who were required to comply quickly) relative to small firms (for whom compliance was delayed). Implementation of Clause 49 in India was done in staggered manner, with large firms (included in “Group A” on the BSE) required to comply first, followed by medium-sized firms and then small firms. Prior to the adoption of Clause 49, India was considered a laggard in corporate governance practices. From 1947 (independence) through 1991, the Indian government pursued socialist policies. The government nationalized most banks, and became the principal provider of both debt and S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 8 A Quarterly Journal equity capital for private firms. The performance of the government agencies who provided capital to private firms was measured, based on the amount of capital disbursed rather than return on capital investment. This policy created little incentive for managers of private firms to voluntarily adopt good governance practices. Hence, during this period (1947-1991), corporate governance practices in India, which were considered to be comparable to that of British firms at independence, considerably deteriorated. In the year 1992, the Securities and Exchange Board of India (SEBI) - India’s securities market regulator was formed. By the mid-1990s, the Indian economy was growing steadily, and Indian firms began to seek capital from variety of sources to finance expansion into the global market spaces created by liberalization and the growth of outsourcing (Black and Khanna, 2007). The need for capital by Indian firms, amongst other things, led to corporate governance reforms. The first major step in this area was setting up of the Confederations of Indian Industry (CII) Code for Desirable Corporate Governance in 1998 (Sanan, 2011). The code published in April 1998 comprised seventeen recommendations. A year later, in May 1999, SEBI announced the formation of the Kumar Mangalam Birla committee, which was tasked with proposing corporate governance reforms. These reforms became ‘Clause 49’ so named because they were implemented through a new Clause 49, which was added to stock exchange listing requirements. Clause 49 has both mandatory as well as voluntary provisions. Mandatory provisions relate to board composition, audit committees, board procedures, management discussion and analysis in the annual reports, certification of financial statements and internal controls, and corporate governance reporting. The adoption of Clause 49 was viewed as a turning point in Indian corporate governance (Black and Khanna, 2007). Dharmapala and Khanna (2013) report that small Indian firms which are subject to Clause 49 react positively to plans by SEBI to enforce the Clause 49, relative to similar firms not subject to Clause 49. There is an expanding literature that examines whether a country’s legal and judicial institutions affect disclosures practices across countries (Jaggiand Low, 2000). Bushman et al.(2004) studied corporate transparency across 45 countries and found substantial differences in corporate disclosure practices that arose from a country’s legal as well as judicial regime. Researchers such as Hope (2003b), and Francis et al.(2005) also found that country-level institutional factors matter in explaining disclosure levels. Khanna et al.(2004) pointed out that customers require financial information to evaluate a foreign firm’s long-term viability, and suppliers use financial statements in evaluating a foreign firm’s creditworthiness. Likewise, employees or prospective employees can use disclosures in assessing employment opportunities with a foreign firm. These arguments are supported by Bowen et al.(1995) who argue that implicit contracts can affect a firm’s accounting practices. Given the unfamiliarity of firms when they enter foreign labour, product or capital markets first time, MNCs have incentives to provide additional information in order to establish and maintain a reputation. This can reduce costs associated with these relational contracts in the long-run. MNCs are seen as amongst the world’s most powerful types of organizations as they account for a large share of intellectual property rights (IPRs), are big employers and contribute to the economic development of the foreign countries where they operate (Williams, 2009). Despite some research interest among scholars in the corporate governance and disclosure practices of MNCs (Strange and Jackson, 2008), comparisons between MNCs subsidiaries and domestic firms on corporate governance and disclosure practices have received very little attention. A MNC subsidiary is defined as a local affiliate of a MNC located in a foreign country of which the parent company holds majority ownership in promoters’ holding. (Bouquet and Birkinshaw, 2008). MNCs subsidiaries face additional complexities and challenges in corporate governance and disclosure practices due to the diversity of corporate governance rules, regulations and stakeholder expectations in the various host countries in which they operate (Luo, 2005). Some studies have examined the differences in corporate disclosure practices between MNC corporate headquarters and domestic firms (Krigger, 1988; Lekseland Lindgren, 1982). However, very few studies have examined the differences between MNC subsidiaries and domestic firms in their corporate governance and disclosure practices in a host country (Cahan et al.,2005; Duru and Reeb, 2002). Pattnaik and Gray (2012) found that subsidiaries of MNCs were more transparent and disclose more than domestic listed Indian firms. Their time frame of the study was before implementation of Clause 49. However, no study was conducted in India regarding corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed in India after implementation of Clause 49. Hence, this S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 9 A Quarterly Journal research fills this gap and compares corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed in BSE for the sample firms across various sectors in year 2011-2012. Development of Hypothesis MNCs Subsidiaries and Domestic Firms Subsidiaries of MNCs operating in developing countries are expected to have higher standard of corporate governance and disclose more information and observe better reporting practices for the various reasons explained below: 1) As they have to comply with the regulations of not only their host country but also those of the parent country or home country, where accounting practices and standards of reporting are substantially higher. 2) Usually, these firms are equipped with more advanced accounting software tools and packages, efficient audit staff, competent and efficient accounting and support staff, and better management practices. The variety of information collected by the parent firms i.e. MNCs, along with their better reporting systems can result in the increase of voluntary disclosures. Hence, they have the potential to disclose more information without any incremental processing costs on disclosures (Choi and Mueller, 1996). 3) These firms are under closer scrutiny of various political and pressure groups within the host country, as they view them as sources of economic exploitation and agents of imperialist power (Kamran and Nicholls, 1994). Hence, such firms have an incentive to disclose more information in order to avert any pressure for excessive control for exploitation (Srinivasan, 2008). 4) International agencies like the Organization for Economic Cooperation and Development (OECD) and others frequently monitor and evaluate the MNCs because of their importance in the global trade. Subsidiaries of MNCs have been frequently accused of tax evasion and other practices like transfer pricing which may end up paying high political costs. 5) MNCs have two related levels of corporate governance structures – one at headquarters and other at subsidiary levels. In the case of MNCs with subsidiaries listed on local stock exchanges in different host countries, those subsidiaries need to simultaneously conform to the host country’s legal requirements as well governance practices of the MNC in home country (Kiel et al., 2006). Therefore, MNC subsidiaries face dual pressures, from the demand of the host country environment where they are operated and also from corporate headquarters of parent MNC in home country (Rosenzweig and Singh, 1991). In recent years, there has been a greater interest in applying institutional theory to the study of MNCs (Westney, 2005), especially to identify and study factors influencing MNC subsidiary practices in different host country institutional environments (Kostova and Roth, 2002; Tempel et al., 2006). Prior empirical research has found that institutional pressures created by legal environment develop an institutional context within which firms make decisions regarding what to disclose and how (Crawford and Williams, 2010). Institutional theory can also be linked to legitimacy theory, as their combined view could provide a better explanation of disclosure practices of MNC subsidiaries. The application of legitimacy theory to MNCs has been studied in detail by many researchers (Dacin et al., 2008; Kostova and Zaheer, 1999). They assert that a MNC subsidiary has to gain dual legitimacy and as such is in a state of institutional duality. MNCs as a parent firm pressurize their subsidiaries internally to adopt their organizational practices which are transferred to it from their parent firm in home country. Externally the host country institutional environment pressurizes MNC subsidiaries to adopt local organizational practices. Hence, MNCs subsidiary has to decide which institutional pressures are more important; internal pressures that would enable it to become legitimate within the working environment of MNCs or the external pressures that would enable it to gain external legitimacy within the legal environment of the host country. In contrast, domestic firms need to confirm only to the demands of their domestic rules, regulations and stakeholder expectations (Alpay et al., 2005). To study the extent of disclosure by MNC subsidiaries in comparison to their parent firms would require a separate study. Major emphasis of such study will be to analyse S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 10 A Quarterly Journal levels of disclosure by MNC subsidiaries in the host country and compare it with disclosure practices of their parent firm or MNCs in their home country. However, such investigation is beyond the scope of this research. Hence, this study focuses on corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed only in India to understand such difference in their practices. Testable Hypothesis This research study seeks to examine how MNC subsidiaries and domestic firms differ in corporate governance and disclosure practices. As MNCs conduct their global business in multiple institutional environments that require different disclosure rules, they may maintain higher disclosure standards and disclose more information than domestic firms. Thus, based on this argument, following null hypothesis is proposed: H01: There are no differences in corporate governance and disclosure practices of MNC subsidiaries and domestic firms listed only in India. Corporate Transparency and Disclosure by Firms:An Indirect Measurement Approach Equity analysts play role of intermediaries between firms and the financial market and serve as transparency enhancing mechanism in market. Analyst forecasts are more accurate and less dispersed for firms with more open disclosure policies (Lang and Lundholm, 1996). Equity analysts collect information about a firm, evaluate its current performance and make future forecasts about the firm. Forecast error captures analysts’ forecast accuracy and is calculated as the absolute value of the difference between actual earnings per share (EPS) and the median analyst forecast of EPS. Forecast dispersion among group of analysts can be calculated as the standard deviation of analysts’ forecast of EPS. The accuracy and dispersion of analysts’ forecast depend on, and reflect the extent to which firms disclose information in the markets (Healy and Palepu, 2001). Prior research have demonstrated that corporate disclosure is positively linked to analysts’ forecast accuracy and negatively to the dispersion among analysts covering a given firm in their forecasts (Bhat et al.,2006). Ashbaugh and Pincus (2001) find that analysts’ forecast accuracy is higher after firms adopt International Accounting Standards (IAS), and Hope (2003a) finds that analysts’ forecast accuracy improves when firm-level disclosure increases. Leuz and Verrecchia (2000) find that German firms switching to US Generally Accepted Accounting Principles (US GAAP) reporting have lower information asymmetry than firms that continue to report under German GAAP, which is a lower disclosure-reporting regime. Pattnaik and Gray (2012) used the measure of corporate transparency based on the characteristics of equity analysts’ forecast behaviour and conclude that voluntary disclosure is negatively related to analyst forecast errors. Analyst forecast error and forecast dispersion were used by researchers as proxies for corporate disclosure and transparency. However, it is subjective measure of corporate disclosure practices as analysts’ subjective opinions could be influenced by firm performance. Hence, this research study uses an alternate approach of direct method of calculating corporate governance and disclosure practices of firms as described below in research design and methodology section. Research Design and Methodology Objective of the Study 1. To measure overall corporate governance and disclosure practices of MNC subsidiaries and domestic firms with the help of an appropriate instrument as an evaluation tool. 2. To know that to what extent subsidiaries of MNCs and domestic firms disclosed through their annual reports by measuring Corporate Governance and Disclosure (CGD) scores of sample firms. Scope of the Study This study will help us to understand that whether MNC subsidiaries have better corporate governance and disclosure practices compared to domestic firms in Indian context. As it is perceived that MNC subsidiaries have more incentives to disclose information compared to domestic firms. Sources of Data For the purpose of study, data of the sample firms collected from the annual reports of the same for the financial year 2011-12 (for the period ending March 2012 or December 2012 based on the firms’ financial year) have been downloaded from the CMIE PROWESS database (Version 4.14). S C M S J o u r n a l o f I n d i a n M a n a g e m e n t , January - March 2 0 1 5 11 A Quarterly Journal Sampling Technique Applied Stratified sampling was used for obtaining data of firms listed in Bombay Stock Exchange (BSE) and is constituent of S&P BSE sectoral indices. Sampling and Data Collection The sample for the study was collected from the firms listed in BSE in the form of S&P BSE sector indices. Sectoral indices at BSE aim to represent minimum of 90\% of the free- float market capitalization for sectoral firms from the universe of S&P BSE 500 index. This sector index consists of the firms classified in that particular sector of the BSE 500 index. From these sectors, banking sector (Bankex) was eliminated as the disclosure requirements for these firms are specialized and regulated by other regulatory authorities. Likewise, realty sector was also not considered because of specific issues of governance. Hence, remaining all nine sectors from S&P BSE sectoral indices were studied for this research. In each of these sectors, top six firms as per market capitalization are selected for sample. Out of sample size of 54 firms, the sample consists of nine public sector firms (16.67\%), 13 MNC subsidiaries (24\%) and others with dominant Indian ownership (59.25\%). Hence, sample represents 41 domestic firms and 13 MNC subsidiaries. The sample firms represent different sectors viz.: Auto (11.1\%), Metal (11.1\%), Oil & Gas (11.1\%), Consumer Durables (11.1\%), Capital Goods (11.1\%), FMCG (11.1\%), Health Care (11.1\%), IT (11.1\%), and Power (11.1\%). As shown below in Table 1, these 54 firms selected from 9 different sectors represent 91\% of overall sectoral index weight. Hence, these samples of 54 firms truly represent selected 9 sectors. Sr. No. S&P BSE Sectoral Indices No. of Firms Studied Weight in Index (Per Cent) 1 S&P BSE Auto 6 89 2 S&P BSE Capital Goods 6 94 3 S&P BSE Consumer Durables 6 90 4 S&P BSE Healthcare 6 88 5 S&P BSE IT 6 95 6 S&P BSE Metal 6 82 7 S&P BSE Oil & Gas 6 94 8 S&P BSE Power 6 97 9 S&P BSE FMCG 6 91 Total Sample Size 54 91 Table 1: Weight of Sample Firms in their respective Sectoral Indices (Source: Calculated by Author form BSE Web Site) The Research Instrument: Direct Measurement of Corporate Governance Disclosure Score A review of the existing literature is undertaken to explore the methodology used for measuring corporate governance and disclosure practices of firms. Prior research studies on disclosure have been broadly classified as those on disclosure indices, event studies and specific disclosure analysis. Researchers have used various methods of computing disclosure score for determining the level of disclosures. The disclosure index provides a reasonable method for measuring the overall disclosure quality of a firm. Prior research in this area has made extensive use of such index methodology as a research tool (Marston and Shrives, 1991). Index method involves the development of an extensive list of disclosure items, which are expected to be relevant to the users of information. The methodology adopted for computing the disclosure score can be of two types; use of the externally developed disclosure … Week Seven: Research Paper – List of potential research topics To complete the Article Research Paper due in Week 7, please select a topic from the list provided below or from the chapter readings.  Financial Markets  Capital Allocation Process  Debt, Equity and Derivative  Securitization  Mortgage-backed securities  Federal Reserve Policy  Investment Fund  Regulation of Financial Institution  U.S. Stock Market  Financial Statements & Reports  Working Capital  Sarbanes-Oxley and Financial Fraud  Performance Evaluation  Return on invested capital  The Federal Income Tax System  Corporate Capital Gains  Financial Analysis & Financial Ratios  Common Size Analysis & Trend Analysis  Comparative Ratios & Benchmarking  Time Value of Money  Perpetuities & Annuities  What loans really cost  The Great Recession of 2007  Bonds Market  Credit Default Swaps  Sinking Funds  Determinants of Market interest rates  Bond Ratings  The term structure of interest rates  Bankruptcy & Reorganization  Financing with Junk Bonds  Investment Returns & Risk  What does investment risk mean?  Risk in a portfolio context  Diversification and Multi-Stock Portfolios  Capital Asset Principal Model  Bernie Madoff Story  The Efficient Markets Hypothesis  The Fama-French Three-Factor Model  Corporate Valuation and Stock Prices  Do stock values affect long term or short term cash flows?  Why are stock prices so volatile?  Financial options  Employee Stock Options  The Black-Scholes Option Price Model (OPM)  Taxes and Stock Options  The Weight Average Cost of Capital  Corporate Valuation and the Cost of Capital  Global Variation in the cost of capital  Managerial Issues and the Cost of Capital  Capital Budgeting  Capital Rationing  Risk Analysis in Capital budgeting  Risk Analysis  Project Valuation  The cash flow effect of asset purchases and Depreciation  Externalities  Tax Depreciation  Financial Planning  Implementing the Target Capital Structure  Economies of Scale  Conflicts between stockholders & Creditors  Conflicts between managers & shareholders  Monitoring and Discipline by the Board of Directors  Charter provisions and by laws that effect the likelihood of hostile takeovers  Using compensation to align managerial and shareholder interests  Capital Structure and Internal Control systems  Environmental Factors outside a firm’s control  Stock Repurchase  Tax Effect Theory  Dividend Irrelevance Theory  Empirical Evidence on Distribution Policies  The impact of Distribution on Intrinsic Value  The pros and cons of dividends and repurchases  Capital structure  Business risk and financial risk  Capital structure theory  Using the Black-Sholes Option Pricing Model to value equity  Managing the maturity structure of Debt  Supply Chain Management  Credit Policy  The cost of trade credit  Revolving credit agreement  Multinational versus domestic Financial Management  Exchange rates  Exchange rates & international trade  The international monetary system and exchange rate policies  Purchasing power parity  International Money and Capital Markets Research Paper: This is a graduate course and students will be expected to research and write papers summarizing in their own words what they have found on current topics from the weekly readings. Research is a theoretical review of relevant literature and application of findings in the literature to a topic related to a specific industry, field, or business problem. The research must be conducted using peer-reviewed trade or academic journals. While Blogs, Wikipedia, encyclopedias, course textbooks, popular magazines, newspaper articles, online websites, etc. are helpful for providing background information, these resources are NOT suitable resources for this research assignment. Please Note: The UC Library staff are very helpful with assisting students in using the UC Online Library journal database. Please contact them if you have issues. In addition, the instructor has provided additional resources, including a research tutorial, in the “Course Resources” folder in the “Content” area of the course. Assignment Requirements: i. Choose a research topic from the chapter readings or from the list provided by your professor. ii. Research/find a minimum at least four (4), preferably five (5) or more, different peer- reviewed articles on your topic from the University of the Cumberlands Library online business database. The article(s) must be relevant and from a peer-reviewed source. While you may use relevant articles from any time frame, current/published within the last five (5) years are preferred. Using literature that is irrelevant or unrelated to the chosen topic will result in a point reduction. iii. Write a four (4) to five (5) page double spaced paper in APA format discussing the findings on your specific topic in your own words. Note - paper length does not include cover page, abstract, or references page(s). iv. Structure your paper as follows: a. Cover page b. Overview describing the importance of the research topic to current business and professional practice in your own words. c. Purpose of Research should reflect the potential benefit of the topic to the current business and professional practice and the larger body of research. d. Review of the Literature summarized in your own words. Note that this should not be a “copy and paste” of literature content, nor should this section be substantially filled with direct quotes from the article. A literature review is a summary of the major points and findings of each of the selected articles (with appropriate citations). Direct quotations should be used sparingly. Normally, this will be the largest section of your paper (this is not a requirement; just a general observation). e. Practical Application of the literature. Describe how your findings from the relevant research literature can shape, inform, and improve current business and professional practice related to your chosen topic. f. Conclusion in your own words g. References formatted according to APA style requirements Grading Criteria:  Content Knowledge & Structure (15 points): All of the requested components are completed as assigned; content is on topic and related to managerial finance, critical thinking is clearly demonstrated (few, if any, direct quotations from the source in the paper); scholarly research is demonstrated; topics and concepts gained from the assigned reading and/or from research is evident.  Critical Thinking (15 points): Demonstrates substantial critical thinking about topics and solid interpretation of materials and reflection.  Clarity & Effective Communication (15 points): Communication is clear, concise, and well presented; scholarly writing is demonstrated; grammar, sentence structure, writing in third person, and word choice is used correctly.  Integration of Knowledge & Articles (15 points): Articles used are current and relevant (preferably published within last five (5) years and MUST be from peer-reviewed journal article publications. At least four (4) peer-reviewed journal articles are examined and analyzed in the paper.  Presentation & Writing Mechanics (15 points): Cover page, headings, in-text citations, page citations (page number citations required for specific information such as dates, years, list of items from article, names, numbers, statistics, and other specific information), and references are properly formatted.  Responses to Other Students (10 points): Substantive responses provided to a minimum of four (4) other students. Responses must provide substantive and meaningful discussion of the content of the other student’s paper and provide comments on the topic; responses must be one (1) to two (2) paragraphs long with a minimum of three sentences per paragraph. Please Note: Plagiarism will not be tolerated. The paper must be written in your own words. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 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