Credit rating agency regulation after the UK's EU membership referendum

Assesses the implications of the UK's decision to withdraw from the EU for the regulation of its credit rating industry. Discusses the current rules of the Credit Rating Agencies Regulations 2010. Considers how the likelihood that a "post-Brexit" UK will be increasingly dependent on its financial services sector might affect the approach taken towards its regulation.

Why the U.S. Justice Department must act against Moody's Corporation

This short note discusses the importance of the decision facing the U.S. Justice Department in the near future regarding whether or not to take action against Moody’s Corp. for its actions in the lead-up to the Financial Crisis. Having already fined Standard & Poor’s a record $1.375 billion for defrauding investors, the Justice Department faces a much different proposition. This note establishes just some of the reasons why it is imperative that Moody’s is punished, even if ultimately the punishment is less noticeable than that given to Standard & Poor’s.

The universal credit rating group:the viability of a response

The role played by the Big Three credit rating agencies (Standard & Poor’s, Moody’s, and Fitch) in the creation of the recent Financial Crisis has been well documented, as too has their conduct in the aftermath of the Crisis where they contributed to the prolonging of the effects of the systemic breakdown. Also, with a string of record fines and cease-and-desist orders in the wake of the Crisis lending weight to the notion that the Big Three have no plans of performing any more ethically, there are a number of organisations that are endeavouring to provide a better alternative to the stranglehold of the Big Three. In the first instalment of the Viability of a Response series we were introduced to the International Non-Profit Credit Rating Agency who, through the amalgamation of forward-looking and non-profit ideals, intends to inject some much needed ethical consideration into the process of providing ratings that are crucial to the marketplace . In this edition of the series, we will be introduced to the Universal Credit Rating Group (UCRG) which is an alliance between Dagong Global Ratings, RusRating, and Egan-Jones Rating Company. We will start by learning more about this alliance that is due to come into effect in the next few years, and then the article will examine the reality of the situation to come to a conclusion on what the Group’s chances of success may be.

Jerónimo Martins, S.A.: Valoración de la empresa

El presente trabajo pretende estimar el valor de la empresa portuguesa Jerónimo Martins, S.A., que cotiza en la Bolsa de Lisboa perteneciendo al índice PSI20. Primeramente se usará el Método de descuento de flujos de caja o de flujos descontados (Discounted Cash Flow), donde a través de una determinada tasa de descuento se actualizarán los flujos futuros esperados para un determinado horizonte temporal en el momento de la valoración. La tasa de descuento a aplicar será la más usada a nivel profesional, el Coste Medio Ponderado de Capital (WACC), que tiene en cuenta la estructura de capital de la empresa, y por consecuente sus posibilidades de endeudamiento, para su valoración. Luego, como no se liquidará la empresa al final del periodo estipulado y suponiendo que seguirá su crecimiento en el tiempo, existe la necesidad de estimar su valor residual.

Fusões e aquisições no setor bancário em Portugal: análise do caso Millennium BCP e Banco BPI

Muitas referências apontam para as Fusões e Aquisições (F&A) como um dos meios mais privilegiados pelas instituições de crédito para fortalecerem a sua posição competitiva. As análises realizadas até hoje debruçam-se essencialmente sobre a observação das motivações, oportunidades e consequências das F&A, das suas vantagens e desvantagens, bem como encontrar a evidência que favoreça a ligação entre concentração e poder de mercado. O principal objetivo deste trabalho passa por inicialmente contribuir através de uma revisão literária existente, para um conhecimento mais abrangente das causa e efeitos dos processos de F&A, com o enfoque no conhecimento bancário. Esta análise é complementada, numa vertente mais empírica, pela avaliação de uma operação de fusão o Millennium BCP e Banco BPI, seguida de uma análise dos possíveis ganhos e a sua repartição pelas entidades envolvidas e respetivos investidores, das sinergias criadas bem como da forma de pagamento. A metodologia baseia-se nos dois primeiros capítulos, em pesquisa bibliográfica sob a forma de revisão de literatura. No terceiro capítulo, para estimar o valor das empresas, utiliza-se o método de análise dos Fluxos de Caixa Atualizados – nas projeções do cash-flow e no valor residual estimado. É feito um reforço desta avaliação através do Método dos Múltiplos. Por fim, é feita uma breve conclusão em modo discussão, onde são evidenciados os principais efeitos ocorridos com a proposta de fusão, tanto no que respeita as entidades financeiras envolvidas, como os acionistas e os seus gestores. Esta mesma conclusão permite verificar que a fusão seria um caminho estratégico viável para as instituições de crédito envolvidas e acionistas.

What Is a Firm’s Life Expectancy? Empirical Evidence in the Context of Portuguese Companies

It is a fact that the uncertainty about a firm’s future has to be measured and incorporated into a company’s valuation throughout the explicit analysis period – in the continuing or terminal value within valuation models. One of the concerns that can influence the continuing value of enterprises, which is not explicitly considered in traditional valuation models, is a firm’s average life expectancy. Although the literature has studied the life cycle of a firm, there is still a considerable lack of references on this topic. If we ignore the period during which a company has the ability to produce future cash flows, the valuations can fall into irreversible errors, leading to results markedly different from market values. This paper aims to provide a contribution in this area. Its main objective is to construct a mortality table for non-listed Portuguese enterprises, showing that the use of a terminal value through a mathematical expression of perpetuity of free cash flows is not adequate. We provide the use of an appropriate coefficient to perceive the number of years in which the company will continue to operate until its theoretical extinction. If well addressed regarding valuation models, this issue can be used to reduce or even to eliminate one of the main problems that cause distortions in contemporary enterprise valuation models: the premise of an enterprise’s unlimited existence in time. Besides studying the companies involved in it, from their existence to their demise, our study intends to push knowledge forward by providing a consistent life and mortality expectancy table for each age of the company, presenting models with an explicitly and different survival rate for each year. Moreover, we show that, after reaching a certain age, firms can reinvent their business, acquiring maturity and consequently postponing their mortality through an additional life period.

Determinants Of Firm Terminal Value: The Perspective Of North American And European Financial Analysts

Company valuation models attempt to estimate the value of a company in two stages: (1) comprising of a period of explicit analysis and (2) based on unlimited production period of cash flows obtained through a mathematical approach of perpetuity, which is the terminal value. In general, these models, whether they belong to the Dividend Discount Model (DDM), the Discount Cash Flow (DCF), or RIM (Residual Income Models) group, discount one attribute (dividends, free cash flow, or results) to a given discount rate. This discount rate, obtained in most cases by the CAPM (Capital asset pricing model) or APT (Arbitrage pricing theory) allows including in the analysis the cost of invested capital based on the risk taking of the attributes. However, one cannot ignore that the second stage of valuation that is usually 53-80% of the company value (Berkman et al., 1998) and is loaded with uncertainties. In this context, particular attention is needed to estimate the value of this portion of the company, under penalty of the assessment producing a high level of error. Mindful of this concern, this study sought to collect the perception of European and North American financial analysts on the key features of the company that they believe contribute most to its value. For this feat, we used a survey with closed answers. From the analysis of 123 valid responses using factor analysis, the authors conclude that there is great importance attached (1) to the life expectancy of the company, (2) to liquidity and operating performance, (3) to innovation and ability to allocate resources to R&D, and (4) to management capacity and capital structure, in determining the value of a company or business in long term. These results contribute to our belief that we can formulate a model for valuating companies and businesses where the results to be obtained in the evaluations are as close as possible to those found in the stock market

Determinants of Terminal Value in the Evaluation of Companies: A Panel Data Approach to the Context of European Companies.

The uncertainty of the future of a firm has to be modelled and incorporated into the evaluation of companies outside their explicit period of analysis, i.e., in the continuing or terminal value considered within valuation models. However, there is a multiplicity of factors that influence the continuing value of businesses which are not currently being considered within valuation models. In fact, ignoring these factors may cause significant errors of judgment, which can lead models to values of goodwill or badwill, far from the substantial value of the inherent assets. Consequently, these results provided will be markedly different from market values. So, why not consider alternative models incorporating life expectancy of companies, as well as the influence of other attributes of the company in order to get a smoother adjustment between market price and valuation methods? This study aims to provide a contribution towards this area, having as its main objective the analysis of potential determinants of firm value in the long term. Using a sample of 714 listed companies, belonging to 15 European countries, and a panel data for the period between 1992 and 2011, our results show that continuing value cannot be regarded as the current value of a constant or growth perpetuity of a particular attribute of the company, but instead be according to a set of attributes such as free cash flow, net income, the average life expectancy of the company, investment in R&D, capabilities and quality of management, liquidity and financing structure.

O valor terminal ou de continuidade, na avaliação de empresas

É um facto que a incerteza sobre o futuro das sociedades tem de ser modelada e incorporada na sua avaliação, fora do período explícito de análise, ou seja: nos valores de continuidade (VC), valor residual (VR) ou valor terminal (VT), considerados nos modelos de avaliação. Existem inúmeros fatores que influenciam o valor de continuidade das empresas e que não são, atualmente, considerados nos modelos de avaliação de empresas, destacando-se, entre os mais relevantes, a ausência de quaisquer referências à esperança média de vida das empresas. De facto, ao ignorarmos esses fatores, podemos incorrer em erros irreparáveis, conduzindo as avaliações a valores de goodwill ou badwill, muito longe do real valor substancial dos ativos, que lhes é intrínseco. Como consequência, os referidos resultados apresentar-se-ão vincadamente diferentes dos valores de mercado. Assim, porque não considerar modelos alternativos (incorporando nos mesmos a esperança de vida das empresas) e a influência de outros fatores, de forma a obter um ajustamento mais eficiente, no que respeita à forma de cálculo do valor da empresa? Este trabalho pretende fornecer um contributo neste domínio, tendo como primeiro objetivo (e para além da revisão da literatura existente sobre a matéria) a construção de uma tábua de mortalidade para as empresas portuguesas, que possa ser utilizada para eliminar ou, pelo menos, reduzir um dos principais problemas causadores de distorção dos atuais modelos de avaliação de empresas: a premissa de existência (ilimitada no tempo) de uma empresa. Com esse propósito, através da metodologia associada à construção de tábuas de mortalidade para os seres humanos, construímos uma tabela com a esperança média de vida associada às empresas portuguesas. Assim, usando uma base de dados (com cerca de 182.000 registos sobre falências, dissoluções e cessão de atividade em Portugal, desde 1900 até 2009), concluímos que, nos primeiros 5 anos, “morrem” 31% das empresas e que a esperança média de vida (à nascença) é de 12 anos. Estes resultados evidenciam a fragilidade dos modelos de avaliação de empresas, em que se estima o VT com uma perpetuidade. Após ficar patente que as empresas não têm uma esperança de vida infinita, preocupar-nos-emos em identificar quais os fatores responsáveis pela existência da empresa (no longo prazo), fatores esses que possam, porventura, justificar uma vida mais longa das sociedades. VI Nesse sentido, o segundo objetivo passou por identificar quais os fatores determinantes do valor terminal da empresa. Assim [utilizando uma amostra de 714 empresas cotadas, pertencentes a 15 países europeus e para um período compreendido entre 1992 e 2011, usando a metodologia GMM (Generalized method of moments), aplicada a dados em painel dinâmico], os resultados evidenciam que o valor de continuidade não pode ser considerado como o valor atual de uma perpetuidade constante (ou com crescimento) de um determinado atributo da empresa mas, sim, em função de um conjunto de atributos, como os free cash flows, os resultados líquidos, a esperança média de vida da empresa, o investimento em I&D, as capacidades e qualidade da gestão, a liquidez dos títulos e a estrutura de financiamento. Como terceiro objetivo (e mantendo a particular atenção na estimação do VT da empresa), procurou-se cruzar os resultados obtidos no estudo anterior com as perceções dos analistas Europeus e Estadunidenses acerca dos atributos da empresa que, na opinião destes, mais contribuem para o seu valor. Para o feito, recorreu-se a um inquérito, com respostas fechadas. Da análise das 123 respostas válidas, obtidas usando a análise fatorial, concluiuse serem determinantes do valor de uma empresa ou negócio os seguintes fatores: a esperança média de vida da empresa, a sua liquidez e desempenho operacional, a inovação e capacidade de afetação de recursos a I&D, as capacidades de gestão e a estrutura de capital, confirmando-se as conclusões até então obtidas. Por fim, fez-se um esforço no sentido de fornecer ao leitor uma nova aproximação teórica ao modelo Discounted CashFlow (DCF), tendo em conta as variáveis entretanto identificadas no nosso estudo. Estes resultados contribuem, a nosso ver, para que se possa caminhar no sentido da construção de um modelo de avaliação de empresas e negócios ainda mais apurado, em que os resultados obtidos nas avaliações se aproximem o mais possível dos verificados no mercado.

Kommunala riktlinjer för anhöriganställningar : En kvalitativ innehållsanalys med feministisk teoriansats

Det övergripande syftet var att undersöka kommunala riktlinjer för anhöriganställningar tillgängliga på kommunernas hemsidor, dvs regeldokument gällande situationer där en anhörig anställs för att vårda en närstående. Det övergripande syftet har byggts upp utifrån följande tre frågeställningar angående hur kommunerna i Sverige beskriver: 1) vilka situationer som berättigar anhöriganställning, 2) hur det säkerställs att den äldre personen skall få sina behov tillgodosedda samt 3) hur säkerställs den anhöriganställdes rättigheter/välmående? Det saknas lagstöd för anhöriganställningar som rättighet, och det kommunala självstyret avgör om kommunen erbjuder denna omsorgsform. På senare tid har anhöriganställningar begränsats och förbjudits i flera svenska kommuner, och enligt uppgifter är det cirka 55–65 % av Sveriges kommuner som tillåter anhöriganställningar. Det är mestadels kvinnor med utländsk bakgrund som är anhöriganställda numera, och feministisk omsorgsforskning och media lyfter fram anhöriganställningar som en kvinnofälla och som en risk för integration av invandrare. I studien inkluderas riktlinjer från totalt 21 kommuner, vilka analyserades med kvalitativ innehållsanalys enligt Elo & Kyngäs (2007). De undersökta riktlinjerna hittades från hemsidorna för Sveriges 121 medelstora och stora kommuner (mer än 20 000 invånare). Resultatet har bearbetats med hjälp av feministisk teori (Hirdman 2012). Resultatet visar att det överlag finns få riktlinjer tillgängliga i Sveriges kommuner och att regelverken skiljer sig åt i de olika kommunerna.  I de riktlinjer som finns är ofta innehållet allmänna eller oklara beskrivningar. En slutsats är därför att många kommuner säkerställer sitt eget handlingsutrymme och ett tolkningsföreträde genom otydliga och allmänt hållna regler i sina riktlinjer. Utifrån ett feministiskt perspektiv kan dessa tolkningsföreträden skapa orättvisa strukturer och skillnader i förutsättningar och villkor för de äldre och för deras anhörigvårdare avseende anhöriganställningar. Slutligen visar resultatet på att de få detaljerade beskrivningarna prioriterar de äldres rättigheter framför de anhöriganställdas. Säkerställandet av de anhöriganställdas rättigheter beskrivs huvudsakligen att ske genom att kontrollera och styra de anhöriganställda. De anhöriganställda är ofta osynliga i riktlinjerna, betraktas som pseudoanställda och hamnar därför mellan stolarna vad gäller stödbehovet (Sand 2010).

Do shareholders really prefer risky projects?

It is often argued that managers representing shareholders' interests tend to undertake risky projects because equity resembles a call option on a firm's assets. However, this conclusion is not generally true when bankruptcy risk is explicitly modelled. This paper compares the relative strength of the agency cost and the bankruptcy risk in determining managerial choice of cash-flow volatility in a continuous-time framework. Assume the existing debt has covenants which preclude additional borrowing and that bankruptcy is triggered when the cash balance hits zero, I show that for low levels of debt, shareholders prefer to minimize cash-flow volatility I also work out the critical face value of the debt above which shareholders are risk-seeking rather than risk-avoiding In short, bankruptcy costs being borne by equity mitigates shareholders' desire for risk.

Corporate political connections, agency costs and audit quality

Purpose – The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach – A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings – Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications – The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value – To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

Corporate social responsibility and dividend policy

This study outlines and tests two corporate social responsibility (CSR) views of dividends. The first view argues that firms are likely to pay fewer dividends because CSR activities lower the cost of equity, encouraging firms to invest or hoard cash rather than to pay dividends. The second view suggests that CSR activities are positive NPV projects that increases earnings and hence dividend payouts. The first (second) view predicts that firms with a stronger involvement in CSR activities should be associated with a lower (higher) dividend payouts. The finding supports the second view and is robust.

Social inclusion and social protection in Nepal

This thesis explores the contribution of social protection to building an inclusive state in the post-conflict democratic era in Nepal. A grounded theory methodology is used to understand the roles of different actors including development partners, civil servants, politicians, the private sector, trade unions, journalists, academics and how recipients of five government funded cash transfers perceive these funds and view their own sense of citizenship.What emerges from the research is insights into how structural and practised forms of exclusion are reproduced, and changed, and the roles of the different actors involved.

A macro-analysis of financial decisions : an examination of special dividend announcements

This paper investigates macro-level explanations for why firms pay special dividends. We find both the business cycle and market condition affect the propensity and abnormal returns of special dividends. Firms are more likely to announce special dividends in market or economic downturns than upturns. They tend to use additional cash for business growth in expansions and distribute it to reduce agency costs in contractions. The signaling effect of special dividends is stronger and companies with these announcements are better performers in recessions than in expansions. This research sheds light on and enhances the understanding of why firms disburse extra cash dividends at the aggregate level.