Capital Structure and Firm Growth: R&D Intensive Companies

The purpose of this study is to examine and explain firm`s growth impact on capital structure decision-making in research and development intensive companies. Many studies claim that R&D has a pivotal impact on capital structure decisions, but corporate finance theories have often failed to explain these observed patterns. As sales growth is an important concept and objective for R&D firms, it is logical to assume that it plays a vital role in capital structure decisions. This study applies nomothetic research approach. The theoretical part employs a formal conceptual analysis in order to develop the propositions that are tested with empirical data. The empirical part consists of the analysis of three companies; the data is obtained from the annual reports over the period 2003 – 2008. The companies operate in IT- or ICT-industry and are publicly listed. The method for analyzing the case data is based on the financial indicators, which are obtained from the financials of the case companies. These economic indicators describe the capital structure and the financial decision-making of the firms. The method relates to the quantitative studies. Yet, this study extends the analysis beyond the indicators. Specifically, this study addresses the question of what is behind the economic indicators, therefore combining aspects of quantitative and qualitative analysis. The firms examined in this study seem to prefer internal finance during growth. However, external finance seems to be a catalyst for sales growth. Firms strongly prefer equity financing. In growth, the use of equity per capital either increases or stays in a constant level. Over the period 2003 – 2008, the firms were often associated to equity related transactions and short-term debt. Short-term debt was used as a substitute of long-term debt and equity. The case firms also adjusted their capital structure – these adjustments were carried out with short-term debt or equity. The case data also provides implications for the growth signal theory that was developed in this study. Based on the econometric indicators, arguments can be made that equity investors are `attracted` to growing R&D firms. This is because growth helps investors perceive the true type of firm. The findings of this study are best explained by the trade-off theory and the pecking order theory. These corporate finance theories are considered as mainstream. Little support can be found to the implications of the signaling theory and market timing theory.

Towards Inter-organizational Working Capital Management

Working capital is an investment which is tied up into the inventories and accounts receivable and which is released with accounts payable. Due to the current business landscape with tightened financial conditions and finance markets, organizations emphasize efficient working capital management. With efficient working capital management, a company can reduce the need of finance, free up cash, increase profitability, improve liquidity, increase the efficiency of operations, and decrease (financing) costs. From the perspective of an individual company, efficient working capital management means decreasing inventory levels by shortening the cycle time of inventories, decreasing accounts receivable by shortening the trade credit terms and effective collection procedures, and increasing the level of accounts payable by paying the suppliers later. From an inter-organizational perspective, however, working capital should not be sub-optimized by a single company but holistic view to working capital management through the supply chain should be adopted to create value and improve performance together. The purpose of this research is to take academic research as well as practical management towards inter-organizational working capital management. The thesis discusses the benefits as well as mechanisms of working capital management in the inter-organizational context and has two main objectives: (1) to examine the effect of inter-organizational working capital management on performance in the value chain context and (2) to develop models of working capital management for internal as well as inter-organizational value chains. The results of the archival research conducted in the value chain of the pulp and paper industry and the value chain of the automotive industry indicate that companies can increase relative profitability by managing working capital comprehensively by taking into account all three components, and holistically though the value chain. Companies in the value chain benefit from different strategies in working capital management depending on the position of the company in the value chain. This can be taken into account in inter-organizational working capital management. The effects of inter-organizational working capital management actions on the financing costs of working capital were studied via simulations. Simulations also show that the value chain and individual companies benefit from an inter-organizational view to working capital management. Inter-organizational working capital management actions include for example: shortening the cycle time of inventories, reducing product costs, shifting inventories, shortening payment terms, and considering the cost of capital. The thesis also provides solutions for the practical requirements for tools to control working capital. The design science part of the research introduces the adjusted cash conversion cycle (ACCC) model for internal value chains, as well as models for working capital management in the inter-organizational value chain context: the working capital management model (WCMM) and the financial cycle time model (FCTM) designed in corporation and product levels respectively. This research contributes to literature on working capital management and interorganizational accounting. The research gives a holistic, inter-organizational view to the management of working capital. It advances the knowledge in working capital management on operational level, increases knowledge in the recently risen theme of supply chainoriented, collaborative working capital management, combines management accounting research with supply chain management research, and contributes to the demand of practical inter-organizational accounting methods. In addition, the research has strong practical focus as new managerial methods are introduced.

Crowdfunding and its utilization for startup finance in Finland – factors of a successful campaign

This thesis studies crowdfunding with qualitive methods to introduce the phenomenon as well as provide guidance to those interested in its utilization. Knowledge and ideas were gathered form several sources, from academic literature to commercial media and expert interviews. Crowdfunding has already demonstrated its ability to impact the startup scene but is still far from being utilized to its full extent, especially in Finland, where even its legality has been questioned. Crowd financing can provide capital to entrepreneurs who might not otherwise be able to obtain funding as well as enable crowdsourcing the funders in several ways. A successful campaign, however, requires a wealth of knowledge on the subject, careful planning and hard work on the implementation. The thesis will provide most benefit to entrepreneurs who are considering the use of this new form of finance, but should also be of value for investors, academics, politicians and everyone else interested in the subject.

The Cycle Times of Working Capital: Financial Value Chain Analysis Method

Interest towards working capital management increased among practitioners and researchers because the financial crisis of 2008 caused the deterioration of the general financial situation. The importance of managing working capital effectively increased dramatically during the financial crisis. On one hand, companies highlighted the importance of working capital management as part of short-term financial management to overcome funding difficulties. On the other hand, in academia, it has been highlighted the need to analyze working capital management from a wider perspective namely from the value chain perspective. Previously, academic articles mostly discussed working capital management from a company-centered perspective. The objective of this thesis was to put working capital management in a wider and more academic perspective and present case studies of the value chains of industries as instrumental in theoretical contributions and practical contributions as complementary to theoretical contributions and conclusions. The principal assumption of this thesis is that selffinancing of value chains can be established through effective working capital management. Thus, the thesis introduces the financial value chain analysis method which is employed in the empirical studies. The effectiveness of working capital management of the value chains is studied through the cycle time of working capital. The financial value chain analysis method employed in this study is designed for considering value chain level phenomena. This method provides a holistic picture of the value chain through financial figures. It extends the value chain analysis to the industry level. Working capital management is studied by the cash conversion cycle that measures the length (days) of time a company has funds tied up in working capital, starting from the payment of purchases to the supplier and ending when remittance of sales is received from the customers. The working capital management practices employed in the automotive, pulp and paper and information and communication technology industries have been studied in this research project. Additionally, the Finnish pharmaceutical industry is studied to obtain a deeper understanding of the working capital management of the value chain. The results indicate that the cycle time of working capital is constant in the value chain context over time. The cash conversion cycle of automotive, pulp and paper, and ICT industries are on average 70, 60 and 40 days, respectively. The difference is mainly a consequence of the different cycle time of inventories. The financial crisis of 2008 affected the working capital management of the industries similarly. Both the cycle time of accounts receivable and accounts payable increased between 2008 and 2009. The results suggest that the companies of the automotive, pulp and paper and ICT value chains were not able to self-finance. Results do not indicate the improvement of value chains position in regard to working capital management either. The findings suggest that companies operating in the Finnish pharmaceutical industry are interested in developing their own working capital management, but collaboration with the value chain partners is not considered interesting. Competition no longer occurs between individual companies, but between value chains. Therefore the financial value chain analysis method introduced in this thesis has the potential to support value chains in improving their competitiveness.

The role of management accounting systems and venture capital investors for start-up firms

The role of star-up firms in economy and the importance of venture capital investors for the growth of start-up firms have been highlighted in recent years. The growth challenges of start-up firms consist of fast changing environment, the availability of venture capital funding and the development of firm management in the growth phase. A growing number of studies have focused on management accounting systems and venture capital in start-up and growth firm context. In this thesis the role of management accounting systems and venture capital investors is considered in the growth phase of firm development. The theoretical objective of this thesis is to construct a theoretical framework in order to describe the importance of management accounting systems and venture capital investors in start-up firms. The practice orientated objective of this thesis is to study the application of management accounting systems and management accounting based information in start-up firms in high-technology industry as well as the impact of venture capital for management accounting system design. In addition, the growth challenges of start-up firms are studied in order to understand the context in which management accounting systems are used. The research approach of theoretical part is conceptual as the theoretical framework is constructed by combining literature on firm growth, management accounting and venture finance in order to analyse the phenomenon. The action-orientated research approach is appropriate for analysing and describing of the studied phenomenon through empirical evidence. The empirical evidence was collected through interviews with three experts in start-up firm accelerator centers, four representatives of start-up firms and one venture capital investor. The results indicate that the growth challenges of stat-up firms are not related to the development of management accounting systems. Managers of start-up firms expressed a positive attitude towards management accounting systems that improve efficiency of operations. In start-up firms flexible and adjustable management accounting practices, such as budgets, cash flow calculations and future-orientated analysis tools, are applied that support planning and coordination of operations. The results indicate that venture capital investors affect the provision and the quality of management accounting information during the investment process. In addition, venture capital investors enhance the use of management accounting information for internal coordination in start-up firms. By applying the theoretical framework in the analysis, it can be stated that by acting as support function management accounting systems facilitate start-up firms development.

Financial working capital - management and measurement

Unexpected changes in cash flow have started to occur more frequently after the financial crisis. The capital structures of companies have also changed, and financial flexibility as well as flexible asset management have therefore become more important. This thesis aims at presenting financial working capital management, a part of flexible asset management, as a possibility to gain financial flexibility and survive the changes. This thesis operates in the interface of corporate finance, strategic management and management accounting, and it has two main objectives: to examine financial working capital management and to develop measures of financial working capital. The research in this thesis has been conducted using archival research and design science. Qualitative comparative analysis and model building are used to formulate tools and strategies for financial working capital management. The tools are tested with simulations, case studies and statistical analysis. The empirical data is collected from companies listed in the Helsinki Stock Exchange. The results of this thesis indicate that there are several possible financial working capital management strategies. FOCAL matrix is created in the thesis to assist in the selection of a strategy. The results also imply that profitability can be improved by reducing financial working capital, which creates a need to change the financial working capital management strategy. Financial flow cycle, and its modification, is developed in this thesis to measure financial working capital. Financial working capital as a concept is presented in this thesis with an orientation towards the management view. New dimensions have also been produced to financial management and working capital management, while providing a holistic approach to financial flexibility. Financial working capital management strategies are presented to managers and practical tools are provided for decision-making.

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.

Timing of Capacity Change: Models for Capital Intensive Industry

The suitable timing of capacity investments is a remarkable issue especially in capital intensive industries. Despite its importance, fairly few studies have been published on the topic. In the present study models for the timing of capacity change in capital intensive industry are developed. The study considers mainly the optimal timing of single capacity changes. The review of earlier research describes connections between cost, capacity and timing literature, and empirical examples are used to describe the starting point of the study and to test the developed models. The study includes four models, which describe the timing question from different perspectives. The first model, which minimizes unit costs, has been built for capacity expansion and replacement situations. It is shown that the optimal timing of an investment can be presented with the capacity and cost advantage ratios. After the unit cost minimization model the view is extended to the direction of profit maximization. The second model states that early investments are preferable if the change of fixed costs is small compared to the change of the contribution margin. The third model is a numerical discounted cash flow model, which emphasizes the roles of start-up time, capacity utilization rate and value of waiting as drivers of the profitable timing of a project. The last model expands the view from project level to company level and connects the flexibility of assets and cost structures to the timing problem. The main results of the research are the solutions of the models and analysis or simulations done with the models. The relevance and applicability of the results are verified by evaluating the logic of the models and by numerical cases.

Uuden auton toimitusketju

Työssä keskitytään erityisesti tehdastoimituksen ja asiakasluovutuksen väliseen aikaan. Tavoite on selvittää eri päällirakenteilla varustettavien autojen varastointiaikoja. Lasketaan lisäksi varastointiajasta aiheutuvia korkokustannuksia. Tarkoitus on myös tutkia mahdollisuuksia varastointiajan vähentämiseksi. Teoriassa perehdytään muun muassa varastointiin ja taloudellisiin vaikutuksiin. Kokeellisessa osiossa toteutetaan kysely eri päällirakentaja-aikojen selvittämiseksi. Määrättyjen autojen osalta selvitetään kokonaisrahoitusajat. Työssä tuotetaan myös prosessin kuvaus uuden auton toimitusketjusta. Todetaan, että mahdollinen pidempi varastointiaika tulee huomioida katteessa kustannusten kattamiseksi. Myyntisaamisten maksuaika saattaa kaksinkertaistaa kokonaisrahoitusajan. Varastointiaikojen vähentämiseksi esitetään seurantalomaketta, maksuaikojen perustelua sekä aikataulun ennakointia käytettäessä rahoitusyhtiötä. Päällirakenteiden osalta suositellaan käytettävän eriteltyjä toimintoja.

Laadullisten tekijöiden vaikutus yrityksen luottoluokitukseen -case Nordea Pankki Suomi Oyj

Tutkielman päätavoitteena oli analysoida, mitkä tekijät vaikuttavat pankin luottoluokituksissa laadullisten tekijöiden arviointiin ja mikävaikutus näillä tekijöillä on luottoluokitukseen. Tutkimuksessa myös arvioitiinlaadullisten tekijöiden vaikutusta pankin pääomavaatimukseen. Tutkimuksessa olimu-kana pankin 408 yritysasiakasta. Tutkimuksessa käytettiin tilastollista tut-kimusmenetelmää. Baselin pankkivalvontakomitean asettamat standardit ja rahoitusalan journaaleissa julkaistut tutkimukset muodostivat tutkimuk-sen teoreettisen viitekehyksen. Tutkimusten pohjalta asetettiin tutkimus-hypoteesit. Tutkimustulokset osoittivat, että laadullisten tekijöiden ja taloudellisten te-kijöiden arvioinnin erotukseen eivät vaikuta merkittävästi yrityksen ikä, ko-ko eikä asiakassuhteen kesto. Myöskään toimialalla ei ollut vaikutusta. Konttoreittain laadullisten tekijöiden arvioinnissa oli eroja. Laadullisia teki-jöitäarvioidaan keskimäärin positiivisemmin kuin taloudellisia tekijöitä mut-ta erotolivat koko otantajoukossa hyvin pieniä. Luottoluokitukset nousevat hieman laadullisten tekijöiden vaikutuksesta, jolloin tällä on pääomavaati-musta laskeva vaikutus. Laadullisten ja taloudellisten tekijöiden arvioinnin eroon voi kuitenkinolla olemassa perustellut syyt. Tutkimustulosten perusteellavoidaan todeta, että laadullisten tekijöiden arviointiin eivät vaikuta yksittäiset yrityskohtaiset tekijät. Luokittelijan sub-jektiivisten tekijöiden lisäksi taustalla saattaa vaikuttaa myös monet muut tekijät, joita ei ole tässä tutkimuksessa tutkittu.

Leasingsopimusten kirjaaminen tilinpäätökseen, case: Toyota Finance Finland Oy

Tutkielman pääaiheena on leasingsopimusten kirjaaminen tilinpäätökseen viiden eri tilinpäätösnormiston näkökulmasta. Tutkielman tavoitteena on selvittää viiden tilinpäätösnormiston, suomalaisen GAAP:n ja IFRS:n, UK GAAP:n, US GAAP:n sekä Japanin GAAP:n, eroavaisuuksia ja yhteneväisyyksiä ja keskittyä näissä varsinkin leasingsopimusten kirjanpidollisten käsittelytapojen eroavaisuuksien tarkasteluun. Lisäksi tutkielman alatavoitteena on selvittää näiden normistojen yleisiä kirjanpidon ja tilinpäätöksen periaatteita. Tutkielman empiria perustuu case-yritys Toyota Finance Finland Oy:n ja sen emoyritysten tilinpäätösten muodon sekä konsernitilinpäätösten sisällön ja leasingsopimusten käsittelyn tarkasteluun. Tutkielma on case-tutkimus mutta se perustuu myös ongelman teoreettiseen käsittelyyn lähdemateriaalin, caseyrityksestä saadun informaation ja oman päättelyn pohjalta. Tutkielma on deskriptiivistä ja sen tarkoituksena onpyrkiä saamaan vastauksia kysymyksiin 'miten on?' ja 'miksi on?'. Tutkielman edetessä voidaan havaita, että vaikka yleiset kirjanpito- ja tilinpäätösperiaatteet ovat aika lailla samansisältöisiä kaikissa viidessä tilinpäätösnormistossa, sisältävät tietyt tilinpäätösstandardit ja -periaatteet huomattaviakin eroavaisuuksia. Leasingsopimukset ovat hyvä esimerkki tilinpäätöseristä, joiden käsittelypoikkeaa huomattavasti toisistaan näiden viiden tilinpäätösnormiston välillä.Suurimman ongelman aiheuttavat käyttö- ja rahoitusleasingsopimusten erilaiset käsittelytavat eri tilinpäätösnormistoissa. Suomalaisen lainsäädännön mukaan käyttö- ja rahoitusleasingsopimukset käsitellään kirjanpidollisesti samalla tavalla mutta esimerkiksi IFRS-normiston, UK GAAP:n ja US GAAP:n mukaan leasingsopimukset tulee jaotella käyttö- ja rahoitusleasingsopimuksiksi niille annettujen luokittelukriteereiden perusteella. Leasingsopimuksen luonteen perusteella määräytyy myös sen kirjanpidollinen käsittely. Suurimman eron suomalaisen käytännön ja esimerkiksi IFRS-normiston välillä aiheuttaa se, että rahoitusleasingsopimukset viedään IFRS-normistossa vuokralle ottajan taseeseen omaisuudeksi ja rahoitusleasingsopimuksen myötä vuokralle ottajalle siirtyy myös kaikki leasinghyödykkeeseen liittyvät edut ja riskit. Suomalaisessa käytännössä rahoitusleasing käsitellään aivan kuin käyttöleasingsopimus, vuokralle antajan taseessa. Käyttöleasingsopimuksen kirjanpidollinen käsittelytapa on kaikissa normistoissa jokseenkin samankaltainen.

VAL-Varastoinvestoinnit satamatoiminnassa. Case: Hamina Port Invest Oy

Tämän tutkielman päätavoitteena oli tutkia varastoinvestointitoimintaa ja sen mandollisuuksia Haminan satamassa. Teoreettinen osa jakautuu kahteen osa-alueeseen. Ensimmäisessä osassa käydään läpi investointien suunnittelua ja niiden taustoja, investoinnin kannattavuuteen vaikuttavia tekijöitä sekä suosituimpia investointilaskentamenetelmiä. Toisessa osassa keskitytään investointien rahoitukseen ja sen suunnitteluun Empiirinen aineisto muodostuu haastatteluista case-yrityksessä. Tutkimusote on normatiivinen. Tutkimuksessa on esitetty Hamina Port Invest Oy:n investointitoiminnan nykytila sekä investointitoimintaanvaikuttavat tekijät. Tutkimustulokset on esitetty tutkielman empiirisen osion lopuksi.

Pääomarakenteisiin vaikuttavat tekijät suomalaisissa pörssiyrityksissä

Tutkielman tavoitteena on selvittää lineaarisen regressioanalyysin avulla paneelidataa käyttäen suomalaisten pörssiyritysten pääomarakenteisiin vaikuttavat tekijät vuosina 1999-2004. Näiden tekijöiden avulla päätellään, mitä pääomarakenneteoriaa/-teorioita nämä yritykset noudattavat. Pääomarakenneteoriat voidaan jakaa kahteen luokkaan sen mukaan, pyritäänkö niissä optimaaliseen pääomarakenteeseen vai ei. Tradeoff- ja siihen liittyvässä agenttiteoriassa pyritään optimaaliseen pääomarakenteeseen. Tradeoff-teoriassa pääomarakenne valitaan punnitsemalla vieraan pääoman hyötyjä ja haittoja. Agenttiteoria on muuten samanlainen kuin tradeoff-teoria, mutta siinä otetaan lisäksi huomioon velan agenttikustannukset. Pecking order - ja ajoitusteoriassa ei pyritä optimaaliseen pääoma-rakenteeseen. Pecking order -teoriassa rahoitus valitaan hierarkian mukaan (tulorahoitus, vieras pääoma, välirahoitus, oma pääoma). Ajoitusteoriassa valitaan se rahoitusmuoto, jota on kannattavinta hankkia vallitsevassa markkinatilanteessa. Empiiristen tulosten mukaan velkaantumisaste riippuu positiivisesti riskistä, vakuudesta ja aineettomasta omaisuudesta. Velkaantumisaste riippuu negatiivisesti likviditeetistä, osaketuotoista ja kannattavuudesta. Osingoilla ei ole vaikutusta velkaantumisasteeseen. Toimialoista teollisuustuotteiden ja -palveluiden sekä perusteollisuuden aloilla on korkeammat velkaantumisasteet kuin muilla toimialoilla. Tulokset tukevat pääosin pecking order -teoriaa ja jonkin verran ajoitusteoriaa. Muut teoriat saavat vain vähäistä tukea.