Pub Date : 2020-11-01DOI: 10.1108/jfrc-10-2021-0082
Sónia Silva, Armando Silva, Ricardo B. Machado
Purpose Using, for the first time, a sample of European listed firms from 30 countries with different legal regimes of board-level employee representation (BLER), the purpose of this paper is to examine the impact of BLER on firms’ value of European public companies, where employee representation is voluntary or imposed by law depending on the country of origin. Design/methodology/approach Using a difference-in-differences approach and a matching procedure, the authors analyze the impact of BLER on firms' value. Findings The results of this paper suggest that BLER adopted voluntarily affects positively firms’ value comparing to a group of firms where employee representation is in some way mandatory. Moreover, the findings of this paper show that firms from countries where BLER is not imposed by law tend to pay higher dividends. Nevertheless, the evidence presented in this paper only holds for low levels of employee representation on the board. Research limitations/implications This research not only provides some evidence in favor of the codetermination on corporate governance but also offers new avenues for discussing the conditions necessary for codetermination to be effective, especially the level of employees' participation on board. Practical implications This study provides to policymakers new insights for them to gain perspective, analyze and decide if codetermination is a useful tool to improve firms’ performance or at least in what conditions it should be applied. Social implications This study incentives the discussion of the proper way to include workers in firms’ boards with expected benefits on firms’ performance, economies and societies. Originality/value This paper provides evidence of a positive (but limited) impact on firms’ value derived from voluntary codetermination.
{"title":"Does Board-level Employee Representation Impact Firms’ Value? Evidence from the European Countries","authors":"Sónia Silva, Armando Silva, Ricardo B. Machado","doi":"10.1108/jfrc-10-2021-0082","DOIUrl":"https://doi.org/10.1108/jfrc-10-2021-0082","url":null,"abstract":"\u0000Purpose\u0000Using, for the first time, a sample of European listed firms from 30 countries with different legal regimes of board-level employee representation (BLER), the purpose of this paper is to examine the impact of BLER on firms’ value of European public companies, where employee representation is voluntary or imposed by law depending on the country of origin.\u0000\u0000\u0000Design/methodology/approach\u0000Using a difference-in-differences approach and a matching procedure, the authors analyze the impact of BLER on firms' value.\u0000\u0000\u0000Findings\u0000The results of this paper suggest that BLER adopted voluntarily affects positively firms’ value comparing to a group of firms where employee representation is in some way mandatory. Moreover, the findings of this paper show that firms from countries where BLER is not imposed by law tend to pay higher dividends. Nevertheless, the evidence presented in this paper only holds for low levels of employee representation on the board.\u0000\u0000\u0000Research limitations/implications\u0000This research not only provides some evidence in favor of the codetermination on corporate governance but also offers new avenues for discussing the conditions necessary for codetermination to be effective, especially the level of employees' participation on board.\u0000\u0000\u0000Practical implications\u0000This study provides to policymakers new insights for them to gain perspective, analyze and decide if codetermination is a useful tool to improve firms’ performance or at least in what conditions it should be applied.\u0000\u0000\u0000Social implications\u0000This study incentives the discussion of the proper way to include workers in firms’ boards with expected benefits on firms’ performance, economies and societies.\u0000\u0000\u0000Originality/value\u0000This paper provides evidence of a positive (but limited) impact on firms’ value derived from voluntary codetermination.\u0000","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124576273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
P. Molyneux, Livia Pancotto, Alessio Reghezza, Costanza Rodriguez d’Acri
In the current low interest rate environment in the euro area there is potential for a sudden increase in interest rates and heightened interest rate risk (IRR). By using a sample of 81 euro area banks during the period 2014Q4-2018Q1 and a confidential supervisory measure of IRR, this paper identifies which bank-specific characteristics can amplify or weaken the impact of a 200 basis points positive shock in interest rates. We find that banks reliant on core deposits, that hold more floating-interest rate loans and that diversify their lending, either by sector or geography, are less exposed to a positive change in interest rates. Interestingly, we discover that banks that did not exploit the exceptional financing provided by the European Central Bank (ECB) reveal greater IRR exposure. These findings advance the debate on the impact on euro area banking of a possible return to a normalised monetary policy.
{"title":"Interest Rate Risk and Monetary Policy Normalisation in the Euro Area","authors":"P. Molyneux, Livia Pancotto, Alessio Reghezza, Costanza Rodriguez d’Acri","doi":"10.2866/144742","DOIUrl":"https://doi.org/10.2866/144742","url":null,"abstract":"In the current low interest rate environment in the euro area there is potential for a sudden increase in interest rates and heightened interest rate risk (IRR). By using a sample of 81 euro area banks during the period 2014Q4-2018Q1 and a confidential supervisory measure of IRR, this paper identifies which bank-specific characteristics can amplify or weaken the impact of a 200 basis points positive shock in interest rates. We find that banks reliant on core deposits, that hold more floating-interest rate loans and that diversify their lending, either by sector or geography, are less exposed to a positive change in interest rates. Interestingly, we discover that banks that did not exploit the exceptional financing provided by the European Central Bank (ECB) reveal greater IRR exposure. These findings advance the debate on the impact on euro area banking of a possible return to a normalised monetary policy.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117259953","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract Measuring interconnectedness in a banking system to identify the potential transmission channels of systemic risk is a main issue for the analysis of financial stability. We develop a methodology based on conditional tail risk networks to assess the channels of transmission in a banking system and to identify the most relevant and/or fragile institutions. The networks are constructed using quantile graphical models and the proposed framework can be considered as a network extension of the Δ CoVaR approach by Adrian and Brunnermeier (2016). From the conditional tail risk networks we can then compute synthetic indices of systemic risk for each bank. An additional set of systemic risk indicators is computed by considering together the network of conditional tail risk and bank-specific indicators of credit risk (as an example we use the ratio of non-performing loans, NPL). The empirical analysis focuses on the European banking system and considers a panel of 36 representative banks. Among the main findings, we found evidence of regional clusters of interconnected banks, especially in crisis period. Moreover, in terms of interconnectedness alone, systemic risk is diffused relatively evenly across European banks, while the set of systemic indicators built using also NPL highlighted a concentration of risk in southern European countries.
{"title":"Network Tail Risk Estimation in the European Banking System","authors":"G. Torri, R. Giacometti, T. Tichý","doi":"10.2139/ssrn.3724390","DOIUrl":"https://doi.org/10.2139/ssrn.3724390","url":null,"abstract":"Abstract Measuring interconnectedness in a banking system to identify the potential transmission channels of systemic risk is a main issue for the analysis of financial stability. We develop a methodology based on conditional tail risk networks to assess the channels of transmission in a banking system and to identify the most relevant and/or fragile institutions. The networks are constructed using quantile graphical models and the proposed framework can be considered as a network extension of the Δ CoVaR approach by Adrian and Brunnermeier (2016). From the conditional tail risk networks we can then compute synthetic indices of systemic risk for each bank. An additional set of systemic risk indicators is computed by considering together the network of conditional tail risk and bank-specific indicators of credit risk (as an example we use the ratio of non-performing loans, NPL). The empirical analysis focuses on the European banking system and considers a panel of 36 representative banks. Among the main findings, we found evidence of regional clusters of interconnected banks, especially in crisis period. Moreover, in terms of interconnectedness alone, systemic risk is diffused relatively evenly across European banks, while the set of systemic indicators built using also NPL highlighted a concentration of risk in southern European countries.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"2001 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125743099","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
According to the Business Roundtable in the US and the Dutch Corporate governance code, companies should focus more on long-term value creation and be accountable to all their relevant stakeholders. This is only possible if long-term value creation is made explicit and measurable and the reporting is checked by an independent third party. The auditor is the designated party for this.
• Steering for long-term value creation is becoming increasingly important for companies. • To make the relatively vague understanding of long-term value creation explicit and measurable, new standards are needed. • The auditor is the appropriate person to audit those new standards.
Long-term value creation is given a prominent place in the revised Dutch Corporate Governance Code 2016 (the “Code”). Management and supervisory boards are accountable for both financial and non-financial aspects of long-term value creation. But the Dutch Code does not prescribe what long-term value creation is and how you determine it. In particular, the non-financial aspects of long-term value creation are difficult to measure and to make comparable, communicable and reliable, let alone controllable. How can we make these aspects more measurable? And who should be responsible for controlling long-term value creation goals?
{"title":"Long-Term Value Creation in Corporate Governance: The Crucial Role for Boards and Auditors","authors":"M. Lückerath-Rovers","doi":"10.2139/ssrn.3714566","DOIUrl":"https://doi.org/10.2139/ssrn.3714566","url":null,"abstract":"According to the Business Roundtable in the US and the Dutch Corporate governance code, companies should focus more on long-term value creation and be accountable to all their relevant stakeholders. This is only possible if long-term value creation is made explicit and measurable and the reporting is checked by an independent third party. The auditor is the designated party for this.<br><br>• Steering for long-term value creation is becoming increasingly important for companies.<br>• To make the relatively vague understanding of long-term value creation explicit and measurable, new standards are needed.<br>• The auditor is the appropriate person to audit those new standards.<br><br>Long-term value creation is given a prominent place in the revised Dutch Corporate Governance Code 2016 (the “Code”). Management and supervisory boards are accountable for both financial and non-financial aspects of long-term value creation. But the Dutch Code does not prescribe what long-term value creation is and how you determine it. In particular, the non-financial aspects of long-term value creation are difficult to measure and to make comparable, communicable and reliable, let alone controllable. How can we make these aspects more measurable? And who should be responsible for controlling long-term value creation goals?","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125749053","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this working paper we provide a detailed descriptions of the impact to European Utilities on the impact of climate related risks.We include the impact of both transition and physical risks that could impact the companies over a period of time from 2020 to 2050. The approach utilises a long term simulation framework from an integrated assessment model that drives company investment choices over the simulation horizon. This approach gives rise to estimates of equity valuation, bond prices, credit ratings and default probabilities that can be used to assess long term credit exposures or potential shifts in current market valuation.
{"title":"A Study of the Potential Impact of Physical and Transition Climate Risks to European Utilities","authors":"C. Cormack","doi":"10.2139/ssrn.3748127","DOIUrl":"https://doi.org/10.2139/ssrn.3748127","url":null,"abstract":"In this working paper we provide a detailed descriptions of the impact to European Utilities on the impact of climate related risks.We include the impact of both transition and physical risks that could impact the companies over a period of time from 2020 to 2050. The approach utilises a long term simulation framework from an integrated assessment model that drives company investment choices over the simulation horizon. This approach gives rise to estimates of equity valuation, bond prices, credit ratings and default probabilities that can be used to assess long term credit exposures or potential shifts in current market valuation.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115132242","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-10-01DOI: 10.18488/journal.62.2021.82.50.69
Randy Priem, Ward Van Rie
This article describes the events leading up to the EURIBOR reform and the efforts to make EURIBOR compliant with the European Benchmark Regulation. It also explains the actions undertaken to transition from EONIA towards €STER and the reasoning behind the choice to recalibrate EONIA into €STER plus a spread. Although EURIBOR is considered BMR-compliant since 2 July 2019 and EONIA can continue to be used until 3 January 2022, this article explains why market participants should not be dis-incentivized to already take actions to provide for fallback rates to EURIBOR in their legal documentation, and to move away from EONIA.
{"title":"The EURIBOR and EONIA Reform: Achieving Regulatory Compliance While Protecting Financial Stability","authors":"Randy Priem, Ward Van Rie","doi":"10.18488/journal.62.2021.82.50.69","DOIUrl":"https://doi.org/10.18488/journal.62.2021.82.50.69","url":null,"abstract":"This article describes the events leading up to the EURIBOR reform and the efforts to make EURIBOR compliant with the European Benchmark Regulation. It also explains the actions undertaken to transition from EONIA towards €STER and the reasoning behind the choice to recalibrate EONIA into €STER plus a spread. Although EURIBOR is considered BMR-compliant since 2 July 2019 and EONIA can continue to be used until 3 January 2022, this article explains why market participants should not be dis-incentivized to already take actions to provide for fallback rates to EURIBOR in their legal documentation, and to move away from EONIA.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130207463","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
When capital markets are affected by the illness of excessive short termism, shareholders (specifically, institutional ones) being inactive and seeking profit only, the consequences can be serious. Not only investee companies are forced to sacrifice their future horizons to appear more attractive, but also the overall investor society faces losses in terms of unachieved long-term values. Stewardship, fostering shareholder engagement, tries to re-equilibrate the relation between short and long termism in capital markets, through a series of initiatives that can be either based on soft law or hard law. In the EU context, after the promulgation of the Shareholder Rights Directive II, Member States started developing new rules for institutional investors and asset managers’ long-term engagement. The cases of Italy and the UK appear curious in this sense, since they are based on different mixtures of hard law and soft law rules. The comparison between the two possibly evidences how the choice for different legislative techniques can truly influence the results. The literal adoption of the Directive in Italy, although accompanied by promising soft law initiatives, represents a likely defeat of hard law, which appears not able to assimilate and ‘tame’ the core aspects of the discipline. Non-financial elements appear not fully valorized, and the material application of the rules too scholastic and uselessly complicated, as testified by the lack of clarity regarding exit (and entry) strategies, the ‘comply or explain principle, and the enforcement system. On the contrary, the approach followed by the UK policymaker, based on soft law mainly, shows a deeper understanding of stewardship and its role. It aims not to impose rigid obligations, but rather to leave market actors free to gradually and metabolize and adapt to the new engagement rules. Financial and non-financial elements appear equally contextualized, and all the applicative aspects mentioned above eventually find proper specification. Enforcement, then, is limited to a social sanctioning level, which again allows the market to – in a certain way – self regulate over time.
{"title":"Institutional Investors and Asset Managers’ Long-Term Engagement Under the SRD II: A Comparative Study Between Italy and the UK","authors":"Alberto Bason","doi":"10.2139/ssrn.3734384","DOIUrl":"https://doi.org/10.2139/ssrn.3734384","url":null,"abstract":"When capital markets are affected by the illness of excessive short termism, shareholders (specifically, institutional ones) being inactive and seeking profit only, the consequences can be serious. Not only investee companies are forced to sacrifice their future horizons to appear more attractive, but also the overall investor society faces losses in terms of unachieved long-term values. Stewardship, fostering shareholder engagement, tries to re-equilibrate the relation between short and long termism in capital markets, through a series of initiatives that can be either based on soft law or hard law. In the EU context, after the promulgation of the Shareholder Rights Directive II, Member States started developing new rules for institutional investors and asset managers’ long-term engagement. The cases of Italy and the UK appear curious in this sense, since they are based on different mixtures of hard law and soft law rules. The comparison between the two possibly evidences how the choice for different legislative techniques can truly influence the results. The literal adoption of the Directive in Italy, although accompanied by promising soft law initiatives, represents a likely defeat of hard law, which appears not able to assimilate and ‘tame’ the core aspects of the discipline. Non-financial elements appear not fully valorized, and the material application of the rules too scholastic and uselessly complicated, as testified by the lack of clarity regarding exit (and entry) strategies, the ‘comply or explain principle, and the enforcement system. On the contrary, the approach followed by the UK policymaker, based on soft law mainly, shows a deeper understanding of stewardship and its role. It aims not to impose rigid obligations, but rather to leave market actors free to gradually and metabolize and adapt to the new engagement rules. Financial and non-financial elements appear equally contextualized, and all the applicative aspects mentioned above eventually find proper specification. Enforcement, then, is limited to a social sanctioning level, which again allows the market to – in a certain way – self regulate over time.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"130 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-09-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124041779","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the effect of the number of cases of COVID-19 on stock returns from over 3,500 publicly listed firms headquartered across 167 regions in 10 European countries. We instrument the number of cases per million inhabitant in each region with its population, density, and the soccer games celebrated in the region. Regions that hosted a soccer match during March show 30% more accumulated cases of COVID-19 in the same month. Within the same country and industry, an increase in the number of instrumented cases per million people in the region during March implies a decrease in stock returns over March and April. The market discount increases significantly among firms managed by CEOs 60 years and older. Overall, we interpret this as evidence of the market anticipating the potential loss of firm value in the event of the CEO dies of COVID-19.
{"title":"COVID-19 and the Value of CEOs","authors":"J. Gómez, M. Mironov","doi":"10.2139/ssrn.3645401","DOIUrl":"https://doi.org/10.2139/ssrn.3645401","url":null,"abstract":"This paper studies the effect of the number of cases of COVID-19 on stock returns from over 3,500 publicly listed firms headquartered across 167 regions in 10 European countries. We instrument the number of cases per million inhabitant in each region with its population, density, and the soccer games celebrated in the region. Regions that hosted a soccer match during March show 30% more accumulated cases of COVID-19 in the same month. Within the same country and industry, an increase in the number of instrumented cases per million people in the region during March implies a decrease in stock returns over March and April. The market discount increases significantly among firms managed by CEOs 60 years and older. Overall, we interpret this as evidence of the market anticipating the potential loss of firm value in the event of the CEO dies of COVID-19.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117023956","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Accounting standards require that financial institutions must measure default risk with respect to the full maturity of a financial instrument. This requires forecasting of future default probabilities. The forecast of future default probabilities concerns two aspects: forecasting macroeconomic scenarios and future average (with respect to the macro-economy) default probabilities. The present paper addresses the modelling of future average default probabilities. Due to the small number of defaults and observations this poses a difficult problem in the corporate area and requires a parsimonious model to deal with the sparse data situation. The degree of difficulty is made greater by the fact that default probabilities change for corporations via different patterns over time, with the pattern being depend on the initial rating grade. For initial investment-grade ratings the risk of a default increases, while for the bottom of the rating scale default probabilities decrease. To model these different patterns the paper proposes to extend the existing discrete-time survival model and to incorporate an additional time- and co-variate-dependent shape parameter into the hazard function. Using data from Standard & Poor's the paper shows that the shape parameter is able to reproduce the different patterns. The proposed model is bench-marked against a model which does not employ a shape parameter and the results show that the shape parameter improves in-sample and out-of-sample prediction.
{"title":"The Term Structure of Default Probabilities","authors":"Oliver Blümke","doi":"10.2139/ssrn.3680544","DOIUrl":"https://doi.org/10.2139/ssrn.3680544","url":null,"abstract":"Accounting standards require that financial institutions must measure default risk with respect to the full maturity of a financial instrument. This requires forecasting of future default probabilities. The forecast of future default probabilities concerns two aspects: forecasting macroeconomic scenarios and future average (with respect to the macro-economy) default probabilities. The present paper addresses the modelling of future average default probabilities. Due to the small number of defaults and observations this poses a difficult problem in the corporate area and requires a parsimonious model to deal with the sparse data situation. The degree of difficulty is made greater by the fact that default probabilities change for corporations via different patterns over time, with the pattern being depend on the initial rating grade. For initial investment-grade ratings the risk of a default increases, while for the bottom of the rating scale default probabilities decrease. To model these different patterns the paper proposes to extend the existing discrete-time survival model and to incorporate an additional time- and co-variate-dependent shape parameter into the hazard function. Using data from Standard & Poor's the paper shows that the shape parameter is able to reproduce the different patterns. The proposed model is bench-marked against a model which does not employ a shape parameter and the results show that the shape parameter improves in-sample and out-of-sample prediction.","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131570207","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we review corporate and project finance techniques used to maximize investor returns and create superior growth strategies. We review the corporate finance concepts and tools used to evaluate investor returns and compare projects. Time value of money concepts can be used to evaluate the free cash flows generated by a project or corporate capital structure. Such studies empower managers to maximize returns, invest in projects that increase the firm value and prune or remedy activities that reduce firm value.
Firstly we introduce the concept that a company or project can be considered as a collection of cash flows and present the tools required to value such cash flows. Secondly we look at corporate & project finance techniques to estimate the cash flows of a broad range of corporate activities and projects. We conclude with a series of case studies where we evaluate a firm’s value, company takeover and acquisition premia and estimate bond financing costs. Finally we consider project finance initiatives, reviewing how to identify profitable investment opportunities and when to accept/reject a project. An Excel example workbook is provided with this paper.
{"title":"Corporate & Project Finance Valuation Techniques for Maximizing Returns & Superior Growth Strategies","authors":"N. Burgess","doi":"10.2139/ssrn.3679413","DOIUrl":"https://doi.org/10.2139/ssrn.3679413","url":null,"abstract":"In this paper we review corporate and project finance techniques used to maximize investor returns and create superior growth strategies. We review the corporate finance concepts and tools used to evaluate investor returns and compare projects. Time value of money concepts can be used to evaluate the free cash flows generated by a project or corporate capital structure. Such studies empower managers to maximize returns, invest in projects that increase the firm value and prune or remedy activities that reduce firm value.<br><br>Firstly we introduce the concept that a company or project can be considered as a collection of cash flows and present the tools required to value such cash flows. Secondly we look at corporate & project finance techniques to estimate the cash flows of a broad range of corporate activities and projects. We conclude with a series of case studies where we evaluate a firm’s value, company takeover and acquisition premia and estimate bond financing costs. Finally we consider project finance initiatives, reviewing how to identify profitable investment opportunities and when to accept/reject a project. An Excel example workbook is provided with this paper.<br>","PeriodicalId":233958,"journal":{"name":"European Finance eJournal","volume":"70 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132738840","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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