Capital structure of Finnish firms – Estimating the effects of firm characteristics on capital structure

One of the most disputable matters in the theory of finance has been the theory of capital structure. The seminal contributions of Modigliani and Miller (1958, 1963) gave rise to a multitude of studies and debates. Since the initial spark, the financial literature has offered two competing theories of financing decision: the trade-off theory and the pecking order theory. The trade-off theory suggests that firms have an optimal capital structure balancing the benefits and costs of debt. The pecking order theory approaches the firm capital structure from information asymmetry perspective and assumes a hierarchy of financing, with firms using first internal funds, followed by debt and as a last resort equity. This thesis analyses the trade-off and pecking order theories and their predictions on a panel data consisting 78 Finnish firms listed on the OMX Helsinki stock exchange. Estimations are performed for the period 2003–2012. The data is collected from Datastream system and consists of financial statement data. A number of capital structure characteristics are identified: firm size, profitability, firm growth opportunities, risk, asset tangibility and taxes, speed of adjustment and financial deficit. A regression analysis is used to examine the effects of the firm characteristics on capitals structure. The regression models were formed based on the relevant theories. The general capital structure model is estimated with fixed effects estimator. Additionally, dynamic models play an important role in several areas of corporate finance, but with the combination of fixed effects and lagged dependent variables the model estimation is more complicated. A dynamic partial adjustment model is estimated using Arellano and Bond (1991) first-differencing generalized method of moments, the ordinary least squares and fixed effects estimators. The results for Finnish listed firms show support for the predictions of profitability, firm size and non-debt tax shields. However, no conclusive support for the pecking-order theory is found. However, the effect of pecking order cannot be fully ignored and it is concluded that instead of being substitutes the trade-off and pecking order theory appear to complement each other. For the partial adjustment model the results show that Finnish listed firms adjust towards their target capital structure with a speed of 29% a year using book debt ratio.

In Search of Corporate Renewal: How to Benefit from Corporate Venturing?

Despite the rapid change in today's business environment there are relatively few studies about corporate renewal. This study aims for its part at filling that research gap by studying the concepts of strategy, corporate renewal, innovation and corporate venturing. Its purpose is to enhance our understanding of how established companies operating in dynamic and global environment can benefit from their corporate venturing activities. The theoretical part approaches the research problem in corporate and venture levels. Firstly, it focuses on mapping the determinants of strategy and suggests using industry, location, resources, knowledge, structure and culture, market, technology and business model to assess the environment and using these determinants to optimize speed and magnitude of change.Secondly, it concludes that the choice of innovation strategy is dependent on the type and dimensions of innovation and suggests assessing market, technology, business model as well as novelty and complexity related to each of them for choosing an optimal context for developing innovations further. Thirdly, it directsattention on processes through which corporate renewal takes place. On corporate level these processes are identified as strategy formulation, strategy formation and strategy implementation. On the venture level the renewal processes are identified as learning, leveraging and nesting. The theoretical contribution of this study, the framework of strategic corporate venturing, joins corporate and venture level management issues together and concludes that strategy processes and linking processes are the mechanism through which continuous corporate renewaltakes place. The framework of strategic corporate venturing proposed by this study is a new way to illustrate the role of corporate venturing as a purposefullybuilt, different view of a company's business environment. The empirical part extended the framework by enhancing our understanding of the link between corporate renewal and corporate venturing in its real life environment in three Finnish companies: Metso, Nokia and TeliaSonera. Characterizing companies' environmentwith the determinants of strategy identified in this study provided a structured way to analyze their competitive position and renewal challenges that they arefacing. More importantly the case studies confirmed that a link between corporate renewal and corporate venturing exists and found out that the link is not as straight forward as indicated by the theory. Furthermore, the case studies enhanced the framework by indicating a sequence according to which the processes work. Firstly, the induced strategy processes strategy formulation and strategy implementation set the scene for corporate venturing context and management processes and leave strategy formation for the venture. Only after that can strategies formed by ventures come back to the corporate level - and if found viable in the corporate level be formalized through formulation and implementation. With the help of the framework of strategic corporate venturing the link between corporaterenewal and corporate venturing can be found and managed. The suggested response to the continuous need for change is continuous renewal i.e. institutionalizing corporate renewal in the strategy processes of the company. As far as benefiting from venturing is concerned the answer lies in deliberately managing venturing in a context different to the mainstream businesses and establishing efficientlinking processes to exploit the renewal potential of individual ventures.

Corporate Identity and Desired Image Elements as a Basis for Corporate Image Development, Case: Myllykoski Sales

Tutkimuksen päätavoitteena oli auttaa Myllykoski –ryhmää määrittämään, mistä tekijöistä ryhmän uuden myyntiorganisaation, Myllykoski Salesin, tulevaisuuden imagon tulisi koostua. Näin ollen tutkimus pyrki selvittämään Myllykoski –ryhmän yritysidentiteetin nykytilaa ja Myllykoski Salesin toivottuja imagotekijöitä, sekä vertaamaan niiden vastaavuutta. Lisäksi tutkimuksen tavoitteena oli tutkia Myllykoski –ryhmän nykyistä ja toivottua tulevaisuuden imagotilaa. Jotta imagonrakennusprosessi olisi menestyksekäs, rakennettavan imagon ja viestittävien imagotekijöiden tulisi perustua yritysidentiteetin todellisiin tekijöihin. Yritysidentiteetin voidaan määritellä olevan yhtäläinen sisäisten sidosryhmien muodostaman yritysmielikuvan kanssa ja näin ollen nykyinen yritysidentiteetti voidaan paljastaa tutkimalla henkilökunnan mielipiteitä työorganisaatiotaan kohtaan. Näin ollen käsiteltävä tutkimus suoritettiin tekemällä kaksi sähköpostikyselyä, jotka suunnattiin Myllykoski -ryhmän myynti- ja markkinointihenkilökunnalle. Tutkimusten vastausprosentit olivat 71,4 % (johto, 14 lähetettyä kyselyä) ja 51,9 % (muu henkilökunta, 108 lähetettyä kyselyä). Saatuja vastauksia analysoitiin sekä laadullisesti että määrällisesti. Saaduista vastauksista oli selvästi havaittavissa Myllykoski –ryhmän yritysidentiteetin nykytila, nykyinen ja toivottu imagotila, sekä Myllykoski Salesin toivotut imagotekijät. Verrattaessa toivottuja imagotekijöitä ryhmän yritysidentiteettiin havaittiin, että suurin osa halutuista imagotekijöistä vastasi ryhmän identiteetin nykytilan ominaisuuksia ja näin ollen kyseisiä tekijöitä voitaisiin huoletta viestiä rakennettaessa Myllykoski Salesin imagoa. Joidenkin toivottujen imagotekijöiden viestintää tulisi kuitenkin vakavasti harkita, jottei rakennettaisi epärealistista imagoa.

Corporate Social Responsibility in the Oil and Gas Industry: Environmental Management Systems as a Source of Sustainable Development

The environmental aspect of corporate social responsibility (CSR) expressed through the process of the EMS implementation in the oil and gas companies is identified as the main subject of this research. In the theoretical part, the basic attention is paid to justification of a link between CSR and environmental management. The achievement of sustainable competitive advantage as a result of environmental capital growth and inclusion of the socially responsible activities in the corporate strategy is another issue that is of special significance here. Besides, two basic forms of environmental management systems (environmental decision support systems and environmental information management systems) are explored and their role in effective stakeholder interaction is tackled. The most crucial benefits of EMS are also analyzed to underline its importance as a source of sustainable development. Further research is based on the survey of 51 sampled oil and gas companies (both publicly owned and state owned ones) originated from different countries all over the world and providing reports on sustainability issues in the open access. To analyze their approach to sustainable development, a specifically designed evaluation matrix with 37 indicators developed in accordance with the General Reporting Initiative (GRI) guidelines for non-financial reporting was prepared. Additionally, the quality of environmental information disclosure was measured on the basis of a quality – quantity matrix. According to results of research, oil and gas companies prefer implementing reactive measures to the costly and knowledge-intensive proactive techniques for elimination of the negative environmental impacts. Besides, it was identified that the environmental performance disclosure is mostly rather limited, so that the quality of non-financial reporting can be judged as quite insufficient. In spite of the fact that most of the oil and gas companies in the sample claim the EMS to be embedded currently in their structure, they often do not provide any details for the process of their implementation. As a potential for the further development of EMS, author mentions possible integration of their different forms in a single entity, extension of existing structure on the basis of consolidation of the structural and strategic precautions as well as development of a unified certification standard instead of several ones that exist today in order to enhance control on the EMS implementation.