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Building on pecking order theory, this study seeks to understand the various financial factors that influence top management's decision regarding the company’s capital structure. The authors attempt to understand and analyse whether the capital structure of mid‐ and small‐cap firms is affected by cash surplus scaled to total assets. Along with other determinants of capital structure such as liquidity, profitability, tangibility, market capitalisation and age, this is considered one of the major factors. Cash surplus is calculated using data from the cash flow statement. It is defined as the difference in cash from operating activities and that from investing activities and is scaled to total assets. To the best of the authors’ knowledge, this is the first study to regress cash surplus scaled to total assets and other determinants over leverage to examine the impact on mid‐ and small‐cap firms. The pecking order theory was found to hold for firms earning cash surplus.

Data were collected from the CMIE Prowess database of all firms listed on the NIFTY Small cap 250 index and NIFTY Midcap 150 index. The data of non-financial firms belonging to the midcap and small-cap sector, listed on the National Stock Exchange of India from 2012 to 2019 were considered. After cleaning the data, an unbalanced panel of 171 companies totalling 1,362 observations for the NIFTY Small-cap 250 index and another panel of 96 companies with 761 observations for the NIFTY Midcap 150 index was created. Panel data regression analysis was used to determine the effect of cash surplus scaled to total assets on the firms' capital structure.

This study demonstrates how small- and midcap firms' behave differently in taking capital structure decisions. Pecking order theory was found to hold for firms earning cash surplus as a proportion of total assets (Surplusta).

The study was conducted through data available on secondary sources and database. The study can be better conducted by conducting a primary survey too. Further study may be conducted with a blend of secondary and questionnaire method. The results can be compared to check the similarity in findings.

Managers can benefit from the findings when making decisions on long- and short-term loans. This study can help managers in terms of the financial variables that have a role to play in the financial leverage of the company. The decision of the managers of midcap or small-cap firms would be different. Factors influencing short- and long-term borrowings are different. Academics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences. Judicious decisions on capital structure will create wealth for the shareholders as the right decision about leverage would result in a proper cost of capital. The findings also add to the existing literature on the Pecking order theory.

Academics can discuss whether there is any difference in the influence of capital structure variables of small- and midcap companies and the reasons for such differences.

The study extends the existing literature by demonstrating that the capital structure of mid and small-cap firms is affected by cash surplus scaled to total assets. The pecking order theory was found to hold for firms earning cash surplus. This study can inform the practitioners about the financial variables that have a role to play in the company's financial leverage. As the results and significance of the variables of the midcap or small-cap firms are different, the decisions of the managers of these firms would be separate for the capital structure of their firms. The study also infers that the factors influencing short and long-term borrowings are different. The study determines whether managers' decision-making in such companies is different in terms of raising short- and long-term loans. The study attempts to guide managers in considering the different variables that would influence their capital structure decisions, particularly the decision to include debt in the capital. Financial variables need not be of equal importance for managers belonging to small- and midcap companies.

This article analyzes the moderating role of investment opportunities, business risk and agency costs in shaping the nexus between excess cash and corporate performance.

This research uses dynamic regression models (two-step system generalized method of moments) to analyze the data related to 200 Turkish companies listed on Borsa Istanbul (BIST) for the years between 2009 and 2020.

The findings indicate that when excess cash increases, the financial performance deteriorates only for firms with lower investments compared to firms with more investments. In addition, investment contributes to better financial performance for firms that hold cash surplus, whereas the influence of investment is insignificant for firms that have insufficient cash. Agency costs of equity exacerbate the adverse impact of excess cash on financial performance while agency costs of debt mitigate this effect. Excess cash reduces the financial performance of highly leveraged firms. However, this impact becomes insignificant when debt ratio decreases. The findings also show that investment has more significant role than business risk in building the precautionary motive to hold cash.

The findings of this article are limited to the Turkish market. Future research is still needed in other emerging markets to compare the results and reveal more about the effect of excess cash on firm performance, and how other factors can change this effect.

The findings verify the increased significance of excess cash in the presence of investment opportunities and difficulties in accessing external funds. Nevertheless, the role of the equity related agency problem in reducing the benefits of cash surplus confirms the necessity of policies that support corporate governance, especially in emerging markets.

This article, according to the knowledge of author, is the first to examine the role of agency costs associated with debt and equity, and the compound effect of investment opportunities and business risk on the nexus between excess internal funds and corporate financial performance in emerging markets.

There are two main alternative explanations in the literature for the patterns of financial reporting during the period of the British Industrial Revolution (BIR). Rob Bryer sees the new social relations of production in which manufacturing entrepreneurs strove to increase the productivity of wage‐labour as leading to a distinct capitalist “calculative mentality”, focused on the return on capital employed; Dick Edwards argues from agency precepts that financial reporting emerged with the transition from “industrial” to “financial capitalism”. This paper aims to reappraise these theorisations using new archival evidence.

Canals, the crucial transport network during the BIR, were owned by limited liability companies financed by outside investors, with clear separation of ownership and control, yet were not capitalist in Bryer's sense because their profits came from a form of rent (tolls on freight) not from the exploitation of wage‐labour. The paper reviews the financial statements of seven major English canals from the 1770s to the 1850s, and uses these findings as a basis for appraising the above‐mentioned theories.

The financial statements of English canal companies do not distinguish profit or enable users to calculate rates of return on capital employed and so assess the performance of management. This sharply conflicts with agency theory but is consistent with Bryer's thesis.

The paper contributes to the authors' understanding of how and why corporate financial reporting emerged, and the relationship between this process and the transition to the capitalist mode of production.

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Crowdfunding is an emergent practice that is increasing exponentially as a means of financing to complement company capital. This chapter focuses on an innovative way of organizing peer-to-peer lending, known as crowdlending. The characteristics of crowdlending are social reward or interest and using the Internet as a medium for communication, prospection and raising funds. To fill the gap in the literature in this regard, this chapter addresses the following questions: Can crowdfunding be considered as a feasible conventional financial tool? What makes crowdlending work? Is it possible to apply the mutual cash holding (MCH) model to crowdlending as well as to previous examples such as the Mondragon Corporation and Trocobuy?

We use three cases (Mondragon Corporation, Trocobuy and Arboribus) to highlight financial tools that use the concept of stakeholder theory that is based on the collaborative management of cash surpluses. Using the Delphi technique combined with in-depth interviews we demonstrate the contribution of the MCH model to crowdlending. We show that the model could be applied to different organizations, thereby indicating its robustness and implying that it could be used in many other cases.

The present study suggests that crowdlending describes a new financing tool as a principal form of lending; it enables companies to implement a financial tool that allows for social development and stakeholder participation and that can ensure companies’ financial sustainability.

This model is based on six elements: expectations of mutual benefits, trust, management, guarantees, mutual profit and benefit. It suggests mutual benefit and positive social values for all stakeholders. However, cash surpluses will be efficiently used only when crowdlending is relevant to investors’ economic objective, because crowdlending as a social innovation does not in itself guarantee economic benefit.

The chapter provides evidence of crowdlending in practice. The research compares key cases in which the MCH model is applied. It also provides important insights into crowdlending as a social innovation.

Solar as an energy source has a massive potential to reduce dependence on fossil fuels in Gulf Countries (GC). One attractive application of solar energy is solar-powered desalination, which is a viable method to produce fresh water. The most significant factor determining the potential deployment of this application is economics.

In this study, the classical economic analysis model has been modified to assess the penetration of solar technology to power desalination plants at different periods during the project lifetime. Furthermore, the environmental and financial values were combined to assess the incentive of powering desalination plants with solar energy in Saudi Arabia. Three systems of solar technologies accompanied with water desalination based on technical applicability were modeled and economically analyzed to understand the impact of various design and operation parameters.

This study shows that PV-RO is currently more competitive at both market and administrated prices in Saudi Arabia, followed by the MED-CSP system and finally CSP-RO system. CSP-RO system starts to generate positive surplus after 11 years, while the base case shows no positive surplus at all during the entire lifetime. Moreover, the same trend continues to hold with MED-CSP and PV-RO systems. The MED-CSP generates positive surplus after six years and PV-RO after five years only. On average, it takes eight years for a project running based on solar (CAPEX and OPEX) and desalination OPEX to generate positive cash surplus.

This paper discusses the debate about incentives for renewable energy in GC and the impact of coupling water production and solar generation. Given that there is no analytical framework built earlier, this paper provides an alternative methodology for policy analysis to understand the role of economies of scope to incentivize solar generation. In other words, the authors are investigating options to reduce the total cost of solar production as a result of increasing the number of different goods produced.

Integrating interdisciplinary studies with Human Capital Management Accounting (HCMA) refers to the dynamics of organized interdisciplinary action that are transversal or cross-cutting. This approach requires the mastery of a certain number of technical skills and disciplines, as well as the capacity to use them in a process to solve problems of financial performance. This is accomplished through the specific interaction tasks that are performed by each management function and operational unit, which act in real time with others, in the same direction as an organizational team, using a selected risk appetite threshold base.

Putting business fields side by side, (i.e., business disciplines silos, as is normally the case in MBA programs), is not enough to create the transversal interaction dynamic needed for firms to achieve expected financial performance goals. As a result, few graduates today have the cross-cutting or vertical skills required to act, in real time, from their workstation in accordance with the pyramid shape of the organization chart in order to create value.

This chapter presents the results of the interface established by a faculty member in the Accounting Department of the University of San Francisco with a “seasoned leader in the FinTech industry.” It proposes a single portal for employers and HRMs to which the continuing education services of professional training associations, executive education departments of colleges, and MBA schools and universities, can connect to issue the HCMA certificate supplementing their training offerings focused on “Leadership Development”.

The purpose of this paper is to draw on the theory of institutional isomorphism to investigate how Mississippi’s centralized cash management policy affects the cash management practices in the state’s rural and urban counties.

The study uses a sequential exploratory mixed methods design involving a qualitative documentary analysis and a quantitative analysis of a survey of Mississippi counties.

The study finds that institutional isomorphism drives cash management practices in the counties by influencing how they follow state and agency mandates. Moreover, while urban counties have superior socio-economic indicators compared to their rural counterparts, no differences exist regarding standardized financial indicators, which suggest that local governments in the state may be imitating the practices of one another.

First, states should consider the different financial and economic conditions of their local governments when prescribing cash management policies because uniform policies could stifle local innovation and reduce efficiency in cash management. Second, when there is pressure from a higher-level government or a state agency, local governments may end up imitating one another rather than exploring opportunities for innovation within state policies. Third, state policies should consider requiring education and training in cash management practices that help identify strategies to add value to public funds within the scope of local fiscal capabilities.

The study uses one state to investigate a unique case of centralized cash management practices. The lessons learned can apply to other states seeking to develop a policy for their small local governments without placing the larger ones at a disadvantage.

After working through the case and assignment questions, the learning outcomes of this study are to understand the dividend policy of a company; compare different types of dividends that a company may give; assess the impact of stock splits and the issue of bonus shares (stock dividends); compare cash dividend and buy-backs as methods of cash distribution to shareholders; evaluate the methods of cash distribution that may be appropriate for the company; and assess the trade-off between long-term value creation and shareholder expectations.

This case study presents the dilemma faced by Partha DeSarkar, the executive director and global CEO of Hinduja Global Solutions (HGS) Limited, a leading business process management (BPM) company. The company would have surplus cash of about US$1.2bn from the selling of its health-care service businesses. The company planned to invest a part of this cashflow into the company’s future growth, with some of it distributed among its shareholders. This case study provides an excellent opportunity for students to determine the best method for rewarding the shareholders. It allows students to compare various cash distribution methods. Students can examine in detail the process involved, the quantum of distribution, tax implications, financial implications, fundraising flexibility and valuation impact of available options.

This case study is best suited for senior undergraduate- and graduate-level business school students in courses focusing on corporate finance, financial management, strategic management and investment banking.

Teaching notes are available for educators only.

CSS: 1 Accounting and Finance