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1 – 10 of over 99000Evaluating capital investments for additions or modifications towarehouses, for replacement of equipment or for entirely new facilitiesis a complex activity which involves…
Abstract
Evaluating capital investments for additions or modifications to warehouses, for replacement of equipment or for entirely new facilities is a complex activity which involves numerous financial, competitive and other considerations. The financial aspect of capital investments is addressed and it is shown how ten different investment criteria can be brought to bear on the capital investment issue. The ten investment criteria consist of five primary criteria and five secondary criteria. The primary criteria are payback period in years, non‐discounted rate of return on investment, internal rate of return, Baldwin rate of return, and benefit cost ratio. All ten criteria are described and suggestions are made when each criterion is appropriate.
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Numerous simulations are made of whether the tax system (1984 UK corporate tax) should have a neutral effect on the investment decision or whether there are incentives or…
Abstract
Numerous simulations are made of whether the tax system (1984 UK corporate tax) should have a neutral effect on the investment decision or whether there are incentives or disincentives to invest.
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Donald K. Clancy and Denton Collins
The purpose of this study is to review the capital budgeting literature over the past decade.
Abstract
Purpose
The purpose of this study is to review the capital budgeting literature over the past decade.
Design/methodology
Specifically, over the years 2004–2013, we review works appearing in the major academic journals in accounting, finance, and management. Further, we review the specialized academic journals in management accounting. We examine the frequency of articles by journal and year published, the type of research method applied, and the topic area studied. We then review the research findings by topic area.
Findings
We find 110 articles appearing in the selected journals. While the articles increase in frequency, the research methods applied are predominantly analytical and archival in nature with relatively few experiments, case studies, or surveys. Some progress is observed for capital budgeting techniques and new methods for structuring uncertainty. The studies find that the size of capital budgets is about right for companies with high financial reporting quality, for liquid companies, during periods of normal cash flow, when the budget is financed by equity, for companies when they first go public or first go private. Tax rates and financial reporting methods for depreciation and tax expenses distort capital budgets. Organization structure and performance measurement can distort capital budgeting. Individual differences, especially optimism and honesty, can influence capital budgeting decisions.
Limitations and Implications
This review is limited to the major journals in accounting, finance, and management; and the specialized journals in management accounting. There is much research to be done on capital budgeting, especially case studies of actual practice and experiments related to individual and group decision processes.
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Douglas J. Cumming and Jeffrey G. MacIntosh
This paper considers efficient venture capital investment duration for different types of entrepreneurial firms so that on exit information asymmetries between the venture…
Abstract
This paper considers efficient venture capital investment duration for different types of entrepreneurial firms so that on exit information asymmetries between the venture capitalist (as seller) and the new owners of the investment are minimized, and capital gains maximized. We hypothesize that a number of factors are likely to affect investment duration, and our empirical tests confirm the statistical significance of some of these variables (stage of firm at first investment, capital available to the venture capital industry, whether the exit was preplanned, and whether the exit was made in response to an unsolicited offer). However, the fit between our theoretical model and the data is stronger in the United States than in Canada, offering evidence in support of the view that institutional factors have distorted investment duration in Canada.
Access to equity capital is critical for business success, especially for young companies which lack the cash flows necessary for debt repayment. The creation and growth of such…
Abstract
Access to equity capital is critical for business success, especially for young companies which lack the cash flows necessary for debt repayment. The creation and growth of such companies is a means to economic opportunity and wealth for ethnic-minority entrepreneurs. Unfortunately, the traditional venture capital industry is extremely limited in its investments.1 It also is significantly less likely to invest in businesses owned by ethnic-minority entrepreneurs than those owned by white entrepreneurs (Bates & Bradford, 1992).2
Roshan and Niti Nandini Chatnani
This study investigates the relationship between working capital investment (WCI) and firm value for Indian manufacturing firms using excess net working capital (NWC) and Tobin's…
Abstract
Purpose
This study investigates the relationship between working capital investment (WCI) and firm value for Indian manufacturing firms using excess net working capital (NWC) and Tobin's Q as a measure of WCI and firm value, respectively. The study also examines whether firms use the cash released from excess investment in working capital to make long-term investments.
Design/methodology/approach
The sample comprises 834 Bombay Stock Exchange (BSE) listed Indian manufacturing firms whose data from April 2010 to March 2020 are analyzed using a fixed-effect panel regression analysis approach.
Findings
The empirical results show that excess NWC influences firm value negatively and significantly. However, the nature of the relationship becomes nonlinear upon dividing the sample into positive excess NWC and negative excess NWC. The findings from the study also reveal that firms redistribute cash freed from positive excess NWC for long-term investments to improve their value without impacting the corresponding risk.
Practical implications
Overall, the results suggest that firms with positive excess NWC can enhance their valuations by building adequate long-term investments from surplus WCI funds.
Originality/value
To the authors’ best knowledge, studies on this issue have primarily focused on developed economies. No study seems to have been done on this subject in the emerging South Asian economies. The present study is the first to bridge the research gap by investigating the relationship between excess WCI and firm value for manufacturing firms in India. Moreover, it examines whether a positive excess NWC reduction translates into corporate investments (CI).
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In the presence of “real effects” of disclosure in a production economy, this research aims to investigate the link between disclosure and cost of capital relating to different…
Abstract
Purpose
In the presence of “real effects” of disclosure in a production economy, this research aims to investigate the link between disclosure and cost of capital relating to different time periods: namely the post-disclosure cost of capital (the cost of capital subsequent to disclosure), the pre-disclosure cost of capital (the cost of capital for the period leading up to disclosure) and the overall cost of capital (the cost of capital across both periods). The author also extends the analysis to whether and how in the presence of a real effect of disclosure, investors' ex ante welfare might be affected.
Design/methodology/approach
This research is conducted via stylized models.
Findings
The author demonstrates that, first, in contrast to findings in a pure-exchange economy, in a production-based economy where disclosure affects firms' investment decisions, both the overall cost of capital and the investors' ex ante welfare can be affected by disclosure quality. As disclosure quality improves, the post-disclosure cost of capital may either increase or decrease, as may the pre-disclosure cost of capital. The change in the post-disclosure cost of capital is not fully offset by the change in the pre-disclosure cost of capital, and therefore the overall cost of capital can either increase or decrease. Second, a firm's profitability of existing and new production are critical factors in determining whether cost of capital increases or decreases with disclosure quality. The author characterizes conditions under which higher disclosure quality increases or decreases the disclosing firm's cost of capital over different time periods. Third, when disclosure affects interrelated firms' production decisions, the disclosing firm's overall cost of capital changes with disclosure quality, even when the marginal (unconditional) distribution of the disclosing firm's cash flow is not affected by the disclosure.
Originality/value
This research contributes to a largely unexplored but important area: the real effect of disclosure on the cost of capital.
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This paper has two purposes: to identify and explain the major forces that are causing the increasing need for operational reporting and intellectual capital (IC) reporting for…
Abstract
Purpose
This paper has two purposes: to identify and explain the major forces that are causing the increasing need for operational reporting and intellectual capital (IC) reporting for European companies; and to identify the necessary and sufficient conditions for operational and intellectual capital reporting if such reporting is to be meaningful for information users.
Design/methodology/approach
The approach for this paper has been to examine relevant papers, reports, guidelines, compendiums, annual reports, opinions, submissions and legislation.
Findings
Eight determining forces are identified that make the basis of the case for the provision of operating and IC information: the long‐standing global dominance and growth of the US economy; the emergence of business models other than the value chain (especially the emergence of network businesses); the changing nature of stock exchanges; the influence of different investment fund types (mutual, pension and hedge funds); the roles of buy‐side and sell‐side analysts; global and European investment index development; rating agency activity; and financial reporting and corporate governance regime development.
Practical implications
The eight forces are interdependent and immutable. Comprehensive operational and IC reporting are unavoidable. Accordingly, the authors propose that the necessary and sufficient conditions for adequate enterprise information reporting are: a legal requirement for mandatory operational and IC reporting and attendant regulatory framework(s) where the legal framework is based on the concept of neglect; key operating and IC resource status and activity performance definitions and metrics that reflect the enterprise's underlying business model(s); and (3) a mapping of the capitalized operational and IC investments that are by definition normally expensed to the financial report accounts.
Originality/value
The authors believe that no one has previously formally proposed a mandatory operational and IC reporting requirement; a legal reference frame of reference based on the legal concept of neglect; standard definitions for operational and IC performance metrics; a reference framework for information quality that is, inter alia, based on the consistency, comparability and comprehensiveness of reported metrics; and the requirement to map all capitalized IC resources back to the financial reports of the company.
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