A correlation sensitivity analysis of non-life underwriting risk in solvency capital requirement estimation

This paper analyses the impact of using different correlation assumptions between lines of business when estimating the risk-based capital reserve, the Solvency Capital Requirement -SCR-, under Solvency II regulations. A case study is presented and the SCR is calculated according to the Standard Model approach. Alternatively, the requirement is then calculated using an Internal Model based on a Monte Carlo simulation of the net underwriting result at a one-year horizon, with copulas being used to model the dependence between lines of business. To address the impact of these model assumptions on the SCR we conduct a sensitivity analysis. We examine changes in the correlation matrix between lines of business and address the choice of copulas. Drawing on aggregate historical data from the Spanish non-life insurance market between 2000 and 2009, we conclude that modifications of the correlation and dependence assumptions have a significant impact on SCR estimation.

Las apropiaciones de la ciudad a la hora de la globalización: las estrategias del capital ruso y chino en el mercado inmobiliario de Barcelona

[spa]Con la internacionalización del mercado inmobiliario de las ciudades, originariamente local, se han generado nuevos flujos de capital que han reforzado a nivel mundial el segundo circuito. Barcelona, por lo menos desde 1992 no ha sido ajena a ello. Los últimos capitales llegados proceden de antiguos países socialistas, especialmente de la República Popular de China y de Rusia, con estrategias distintas de localización, más concentradas las chinas. Las consecuencias de estas nuevas apropiaciones del espacio urbano se sienten en la restricción del acceso al mercado de la vivienda por parte de los ciudadanos y en la formación de una Chinatown de modelo europeo.

Ex-Dividend Day Returns when Dividend and Capital Gains are Taxed at the Same Rate

Due to the overwhelming international evidence that stock prices drop by less than the dividend paid on ex-dividend days, the ex-dividend day anomaly is considered a stylized fact. Two main approaches have emerged to explain this empirical regularity: the tax-clientele hypothesis and the microstructure of financial markets. Although the most widely accepted explanation for this fact relies on taxes, the ex-dividend day anomaly has been reported even in countries where neither dividends nor capital gains are taxed. The 2006 tax reform in Spain established the same tax rate for dividends and capital gains. This paper investigates stock returns on ex-dividend days in the Spanish stock market after the 2006 tax reform using a random coefficient model. Contrary to previous research, we do not observe an ex-dividend day anomaly. Unlike previous investigations, which are mostly concerned with suggesting explanations as to why this anomaly has occurred, we are in the somewhat strange position of discussing why this anomaly has not occurred. Our findings are robust across companies and stock dividend yields, thus supporting a tax--based explanation for the ex-dividend day anomaly.

Capital Structure of Finnish SMEs and Financial Constraints

This thesis studies capital structure of Finnish small and medium sized enterprises. The specific object of the study is to test whether financial constraints have an effect on capital structure. In addition influences of several other factors were studied. Capital structure determinants are formulated based on three capital structure theories. The tradeoff theory and the agency theory concentrate on the search of optimal capital structure. The pecking order theory concerns favouring on financing source over another. The data of this study consists of financial statement data and results of corporate questionnaire. Regression analysis was used to find out the effects of several determinants. Regression models were formed based on the presented theories. Short and long term debt ratios were considered separately. The metrics of financially constrained firms was included in all models. It was found that financial constrains have a negative and significant effect to short term debt ratios. The effect was negative also to long term debt ratio but not statistically significant. Other considerable factors that influenced debt ratios were fixed assets, age, profitability, single owner and sufficiency of internal financing.

Theoretical background for market emergence framework : Case: Electricity Distribution Industry

Both the competitive environment and the internal structure of an industrial organization are typically included in the processes which describe the strategic management processes of the firm, but less attention has been paid to the interdependence between these views. Therefore, this research focuses on explaining the particular conditions of an industry change, which lead managers to realign the firm in respect of its environment for generating competitive advantage. The research question that directs the development of the theoretical framework is: Why do firms outsource some of their functions? The three general stages of the analysis are related to the following research topics: (i) understanding forces that shape the industry, (ii) estimating the impacts of transforming customer preferences, rivalry, and changing capability bases on the relevance of existing assets and activities, and emergence of new business models, and (iii) developing optional structures for future value chains and understanding general boundaries for market emergence. The defined research setting contributes to the managerial research questions “Why do firms reorganize their value chains?”, “Why and how are decisions made?” Combining Transaction Cost Economics (TCE) and Resource-Based View (RBV) within an integrated framework makes it possible to evaluate the two dimensions of a company’s resources, namely the strategic value and transferability. The final decision of restructuring will be made based on an analysis of the actual business potential of the outsourcing, where benefits and risks are evaluated. The firm focuses on the risk of opportunism, hold-up problems, pricing, and opportunities to reach a complete contract, and finally on the direct benefits and risks for financial performance. The supplier analyzes the business potential of an activity outside the specific customer, the amount of customer-specific investments, the service provider’s competitive position, abilities to revenue gains in generic segments, and long-term dependence on the customer.

Suomalaisten teollisuuden kunnossapitoyritysten investoinnit: analyysi ja skenaariot

Työn tavoitteena oli lisätä ymmärrystä teollisuuden kunnossapidon toimialasta ja sen tulevaisuudesta, tutkimalla teollisuuden kunnossapitoyritysten toteuttamia käyttöomaisuus- ja käyttöpääomainvestointeja vuosilta 2003–2007. Tutkimus toteutettiin tilinpää-tösanalyysin menetelmin suppealla, mutta edustavalla, 20 teollisuuden kunnossapitoyrityksen tilinpäätösaineistolla. Yritysjoukko jaettiin pk-yrityksiin ja suuriin yrityksiin, jolla pyrittiin kuvaamaan toimialan todellisempaa rakennetta. Analyysiosiossa tarkasteltiin toteutuneita investointiasteita, investointilogiikoita, yritysten kannattavuuksia sekä käyttöpääomainvestointien hallintaa. Toteutetun analyysin perusteella luotiin kolme tulevaisuuden skenaariota teollisuuden kunnossapidon toimi-alan kehitykselle. Eri skenaarioille laskettiin ennustemallilla keskimääräiset investointiasteet. Analyysin mukaan teollisuuden kunnossapitoyrityksien liikevaihto kasvoi tutkimusaikavälillä keskimäärin noin 8,5 prosenttia vuodessa. Kyseinen kasvu on vaatinut yrityksiltä noin 2,5 prosentin investointiasteen. Verratessa pk-yrityksiä ja isoja yrityksiä, havaittiin merkittäviä eroja toteutuneissa investointiasteissa sekä investointilogiikoissa. Yhteistä yritysjoukoille oli hyvä kannattavuus, johon eri investointiasteilla ei näyttäisi lyhyellä aikavälillä olevan vaikutusta. Tulevaisuuden investointitarve vaikuttaa maltillisemmalta kuin toteutunut taso, johtuen osaltaan taantuman vaikutuksista.

The determinants of capital intensity in Japan and the U.S

We estimate the determinants of capital intensity in Japan and the US, characterized by striking different paths. We augment an otherwise standard Constant Elasticity of Substitution (CES) model with demand-side considerations, which we find especially relevant in the US. In this augmented setting, the elasticity of substitution between capital and labor is placed around 0.85 in Japan, and 0.30 in the US. We also find evidence of biased technical change, which is capital-saving in Japan but labor-saving in the US. These differences help us explain the diverse experience in the capital deepening process of these economies, and lead us to conclude that demand-side drivers may also be relevant to account for different growth experiences. A close look at the nature of technological change is also needed before designing one-size-fits-all industrial, economic growth, and/or labor market policies.

Engendering Group Support Based Foresight for Capital Intensive Manufacturing Industries - Case Paper and Steel Industry Scenarios by 2018

In recent times of global turmoil, the need for uncertainty management has become ever momentous. The need for enhanced foresight especially concerns capital-intensive industries, which need to commit their resources and assets with long-term planning horizons. Scenario planning has been acknowledged to have many virtues - and limitations - concerning the mapping of the future and illustrating the alternative development paths. The present study has been initiated to address both the need of improved foresight in two capital-intensive industries, i.e. the paper and steel industries and the imperfections in the current scenario practice. The research problem has been approached by engendering a problem-solving vehicle, which combines, e.g. elements of generic scenario process, face-to-face group support methods, deductive scenario reasoning and causal mapping into a fully integrated scenario process. The process, called the SAGES scenario framework, has been empirically tested by creating alternative futures for two capital-intensive industries, i.e. the paper and steel industries. Three scenarios for each industry have been engendered together with the identification of the key megatrends, the most important foreign investment determinants, key future drivers and leading indicators for the materialisation of the scenarios. The empirical results revealed a two-fold outlook for the paper industry, while the steel industry future was seen as much more positive. The research found support for utilising group support systems in scenario and strategic planning context with some limitations. Key perceived benefits include high time-efficiency, productivity and lower resource-intensiveness. Group support also seems to enhance participant satisfaction, encourage innovative thinking and provide the users with personalised qualitative scenarios.

Product costing model for laser welded hollow core steel panels

The aim of the study was to create an easily upgradable product costing model for laser welded hollow core steel panels to help in pricing decisions. The theory section includes a literature review to identify traditional and modern cost accounting methodologies, which are used by manufacturing companies. The theory section also presents the basics of steel panel structures and their manufacturing methods and manufacturing costs based on previous research. Activity-Based costing turned out to be the most appropriate methodology for the costing model because of wide product variations. Activity analysis and the determination of cost drivers based on observations and interviews were the key steps in the creation of the model. The created model was used to test how panel parameters affect the costs caused by the main manufacturing stages and materials. By comparing cost structures, it was possible to find the panel types that are the most economic and uneconomic to manufacture. A sensitivity analysis proved that the model gives sufficiently reliable cost information to support pricing decisions. More reliable cost information could be achieved by determining the cost drivers more accurately. Alternative methods for manufacturing the cores were compared with the model. The comparison proved that roll forming can be more advantageous and flexible than press brake bending. However, more extensive research showed that roll forming is possible only when the cores are designed to be manufactured by roll forming. Due to that fact, when new panels are designed consideration should be given to the possibility of using roll forming.

Financier’s credit risk: A Performance-Based Classification Model

The purpose of this study is to view credit risk from the financier’s point of view in a theoretical framework. Results and aspects of the previous studies regarding measuring credit risk with accounting based scoring models are also examined. The theoretical framework and previous studies are then used to support the empirical analysis which aims to develop a credit risk measure for a bank’s internal use or a risk management tool for a company to indicate its credit risk to the financier. The study covers a sample of Finnish companies from 12 different industries and four different company categories and employs their accounting information from 2004 to 2008. The empirical analysis consists of six stage methodology process which uses measures of profitability, liquidity, capital structure and cash flow to determine financier’s credit risk, define five significant risk classes and produce risk classification model. The study is confidential until 15.10.2012.

Osingonjakopäätökset pienissä osakeyhtiöissä. Empiirinen tutkimus osakeyhtiölain varojenjakosäännösten toteutumisesta

Tässä väitöstutkimuksessa tarkastellaan Suomen osakeyhtiölain pakottavien varojenjakosäännösten vaikutusta osingonjakopaatoksiin. Lain vaikutuksen seuraamisen lisäksi pyritään muodostamaan kokonaiskuva tekijöistä, jotka vaikuttavat pienissä yhtiöissä tehtäviin osingonjakopäätöksiin. Väitöskirja koostuu kahdesta eri osasta. Ensimmäisessä osassa osoitetaan, kuinka toisen osan artikkelit muodostavat kokonaisuuden ja esitellään tutkimustulokset. Väitöskirjan toinen osa koostuu neljästä toisiaan täydentävästä artikkelista. Tutkimus etenee julkaisujen myötä ensin maksukykytestin määrittelystä maksukykytestiin liittyviin oikeudellisiin ongelmiin sekä tilinpaatoksen merkitykseen osingonjakopäätöksissä, siirtyen sitten omistaja johtajan tarpeisiin ja tavoitteisiin, päättyen lopuksi velkojan näkökulmaan. Tutkimuksen tavoitteeksi asetettiin kokonaiskuvan muodostaminen niistä tekijöistä, jotka vaikuttavat osingonjakopäätöksen tekemiseen pienissä osakeyhtiöissä. Tavoitteena oli myös selvittää kuinka osakeyhtiölain 13 luvun varojenjakosäännökset otetaan huomioon osingonjakopäätöstä tehtäessä. Tutkimusaineistona käytettiin sekä kyselytutkimusaineistoa että tilinpäätöstietoja. Aineistoa analysoitiin kvantitatiivisin menetelmin. Tutkimusaineistosta löydettiin kolme erilaista varallisuuden siirtämisen strategiaa. Ne nimettiin seuraavasti: tulojen maksimointi, verosuunnittelu, palkan jousto. Tutkimuksesta nousee esiin kolme keskeistä tulosta. Ensinnäkin, liiketaloustieteellinen maksukyvyn merkitys poikkeaa oikeustieteessä käsitetystä maksukyvystä. Toiseksi, osakeyhtiölain 13 luvun varojenjakosäännökset tulee ottaa huomioon sekä osingonjakopäätöstä tehtäessä että varojen tosiasiallisesti siirtyessä pois yhtiön vaikutuspiiristä. Kolmanneksi, pääomatuloverotuksen kiristyessä omistaja johtaja saattaa siirtää varallisuutta yhtiöstä yksityistalouteen osingon sijasta palkkana. Tämän seurauksena maksukykytestin merkitys vähenee erityisesti pienissä yhtiöissä. Tulosten perusteella tasetesti näyttää olevan pienissä yhtiöissä maksukykytestiä merkityksellisempi.

Characteristics of credit risk assessment methods of major Nordic banks in allocating capital when extending credits to large corporations

Credit risk assessment is an integral part of banking. Credit risk means that the return will not materialise in case the customer fails to fulfil its obligations. Thus a key component of banking is setting acceptance criteria for granting loans. Theoretical part of the study focuses on key components of credit assessment methods of Banks in the literature when extending credits to large corporations. Main component is Basel II Accord, which sets regulatory requirement for credit risk assessment methods of banks. Empirical part comprises, as primary source, analysis of major Nordic banks’ annual reports and risk management reports. As secondary source complimentary interviews were carried out with senior credit risk assessment personnel. The findings indicate that all major Nordic banks are using combination of quantitative and qualitative information in credit risk assessment model when extending credits to large corporations. The relative input of qualitative information depends on the selected approach to the credit rating, i.e. point-in-time or through-the-cycle.

Working Capital Management: a Bibliometric Study

This thesis is a study of articles published in scientific journals about working capital management using bibliometric methods. The study was restricted to articles published in 1990–2010 that deal with the whole working capital management topic not a single sub-area of it. Working capital is defined as current assets minus current liabilities; sometimes also a definition of inventory plus accounts receivable minus accounts payable is used. The data was retrieved from the databases ISI Web of Science and Sciverse Scopus. Articles about working capital management were found 23. Content analysis, statistical analysis and citation analysis was performed to the articles. The most cited articles found in citation analysis were also analyzed by nearly same methods. This study found that scientific research of working capital management seems not to be concentrated to specific persons, organizations or journals. The originality and novelty in many articles is low. Many articles studied relation between working capital management and profitability in firms or working capital management practices of firms using statistical analyses. Data in articles was firms of all sizes, except in developing economies only big firms were used. Interesting areas for future research could be surveys made about working capital management practices in firms, finding of best practices, tools for working capital management, inventing or improving alternative views to working capital management like process-oriented view and firm or industry specific studies.

Working capital management in the small and medium-sized enterprises Case: Project-based business environment in Flowrox Oy

This Master´s thesis illustrates how growing a business ties up the company´s working capital and what the cost of committed capital. In order to manage a company´s working capital in rapid business growth phase, the thesis suggests that by monitoring and managing the operating and cash conversion cycles of customers´ projects, a company can find ways to secure the required amount of capital. The research method of this thesis was based on literature reviews and case study research. The theoretical review presents the concepts of working capital and provides the background for understanding how to improve working capital management. The company in subject is a global small and medium-sized enterprise that manufactures pumps and valves for demanding process conditions. The company is expanding, which creates lots of challenges. This thesis concentrates to the company´s working capital management and its efficiency through the supply chain and value chain perspective. The main elements of working capital management are inventory management, accounts receivable management and accounts payable management. Prepayments also play a significant role, particularly in project-based businesses. Developing companies´ working capital management requires knowledge from different kind of key operations´ in the company, like purchasing, production, sales, logistics and financing. The perspective to develop and describe working capital management is an operational. After literature reviews the thesis present pilot projects that formed the basis of a model to monitor working capital in the case company. Based on analysis and pilot projects, the thesis introduces a rough model for monitoring capital commitments in short time period. With the model the company can more efficiently monitor and manage their customer projects.

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.