...finance are consistent and areas where they are not. The survey conducted is based on two parts, capital budgeting and capital structure. The survey goes deeper and tries to find out what causes capital budgeting and structure decisions in firms. The survey consists of 100 questions to explore capital budgeting and structure decisions in depth. The original sample for the survey was 4,440 firms but only 392 CFOs responded to the survey, making the response rate a dramatic 9%. The results of the survey were analyzed based on firm characteristics. The responses given by the executives are compared in relation to the firm size, P/E ratio, leverage, credit rating, dividend policy, industry, management ownership, CEO age, CEO tenure, and CEO educational attainment. Comparing the responses to all these variables gives the results a more meaningful explanation because it is able to test various finance theories. The responses to the capital budgeting portion of the survey follow academic advice and use present value techniques to evaluate new projects. But when it comes to capital structure, firms rely on practical, informal rules and pay less attention to academic advice. Survey Methodology Before the surveys were sent out, they went through a series of tests to make sure they were perfect in a sense of asking clear and pertinent questions and making sure no biases existed. A draft survey was sent out to a group of academics and practitioners for feedback. Once perfected, two mechanisms...
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...is a financial and fiduciary services company. In 1994, it had 216 branches and managed $49.4 billion in trust assets with a staff of 840 full-time employees. The firm was falling behind the competition because the institutional custody business was becoming extremely technology-intensive, with some of the larger players outsourcing their entire backroom function in order to make large operations more effective. Therefore, a project was initiated to convert the trust division’s outdated information system into a more efficient system using Access Plus, a new trust and custody management software. Initiatives objectives/Benefits Intensive competitive pressures, client demands, and some internal problems were driving the need for the initiative. Specifically: 1. Competitors were having more advanced systems and technical competitive advantages 2. Clients were unhappy about the quality of the services 3. Decentralized control and lack of a clear distribution of responsibility Providian Trust wished to solve the above problems through the implementation of the new system. They also expected that the improved computerized trust system would consolidate and centralize data administration, give trust officers more time to interact with clients, reduce the number of full-time employees from 840 to 660, and save $9.2 million annually. Initiative challenges Challenge | Response | Problems with the response | Transition in leadership at the CEO level. The new CEO Stephen...
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...Journal of Financial Economics 61 (2001) 000-000 The theory and practice of corporate finance: Evidence from the field John R. Grahama, Campbell R. Harveya,b,* aFuqua School of Business, Duke University, Durham, NC 27708, USA bNational Bureau of Economic Research, Cambridge, MA 02912, USA (Received 2 August 1999; final version received 10 December 1999) Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. A surprising number of firms use firm risk rather than project risk in evaluating new investments. Firms are concerned about financial flexibility and credit ratings when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes. JEL classification: G31, G32, G12 Key words: Capital structure; Cost of capital; Cost of equity; Capital budgeting; Discount rates; Project valuation; Survey *Corresponding author, Tel: 919 660 7768, Fax: 919 660 7971 E-mail address: cam.harvey@duke...
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...Journal of Financial Economics 60 (2001) 187}243 The theory and practice of corporate "nance: evidence from the "eld John R. Graham , Campbell R. Harvey * Fuqua School of Business, Duke University, Durham, NC 27708, USA National Bureau of Economic Research, Cambridge, MA 02912, USA Received 2 August 1999; received in revised form 10 December 1999 Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large "rms rely heavily on present value techniques and the capital asset pricing model, while small "rms are relatively likely to use the payback criterion. A surprising number of "rms use "rm risk rather than project risk in evaluating new investments. Firms are concerned about "nancial #exibility and credit ratings when issuing debt, and earnings We thank Franklin Allen for his detailed comments on the survey instrument and the overall project. We appreciate the input of Chris Allen, J.B. Heaton, Craig Lewis, Cli! Smith, Jeremy Stein, Robert Taggart, and Sheridan Titman on the survey questions and design. We received expert survey advice from Lisa Abendroth, John Lynch, and Greg Stewart. We thank Carol Bass, Frank Ryan, and Fuqua MBA students for help in gathering the data, and Kathy Benton, Steve Fink, Anne Higgs, Ken Rona, and Ge Zhang for computer assistance. The paper has bene"ted from comments made by an anonymous referee, the editor (Bill Schwert), as well as Michael Bradley, Alon Brav, Susan Chaplinsky, Magnus Dahlquist...
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...Journal of Financial Economics 60 (2001) 187}243 The theory and practice of corporate "nance: evidence from the "eldଝ John R. Graham , Campbell R. Harvey * Fuqua School of Business, Duke University, Durham, NC 27708, USA National Bureau of Economic Research, Cambridge, MA 02912, USA Received 2 August 1999; received in revised form 10 December 1999 Abstract We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large "rms rely heavily on present value techniques and the capital asset pricing model, while small "rms are relatively likely to use the payback criterion. A surprising number of "rms use "rm risk rather than project risk in evaluating new investments. Firms are concerned about "nancial #exibility and credit ratings when issuing debt, and earnings ଝ We thank Franklin Allen for his detailed comments on the survey instrument and the overall project. We appreciate the input of Chris Allen, J.B. Heaton, Craig Lewis, Cli! Smith, Jeremy Stein, Robert Taggart, and Sheridan Titman on the survey questions and design. We received expert survey advice from Lisa Abendroth, John Lynch, and Greg Stewart. We thank Carol Bass, Frank Ryan, and Fuqua MBA students for help in gathering the data, and Kathy Benton, Steve Fink, Anne Higgs, Ken Rona, and Ge Zhang for computer assistance. The paper has bene"ted from comments made by an anonymous referee, the editor (Bill Schwert), as well as Michael Bradley, Alon Brav, Susan Chaplinsky...
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...practitioners will find it worthwhile to observe how other companies operate and perhaps modify their own practices. It may also be useful for finance academics to consider differences between theory and practice as a reason to revisit the theory. We solicited responses from approximately 4,440 companies and received 392 completed surveys, representing a wide variety of firms and industries.1 The survey contained nearly 100 questions and explored both capital budgeting and capital structure decisions in depth. The responses to these questions enabled us to explore whether and how these corporate policies are interrelated. For example, we investigated whether companies that made more aggressive use of debt financing also tended to use more sophisticated capital budgeting techniques, perhaps because of their greater need for discipline and precision in the corporate investment process. More generally, the design of our survey allowed for a richer understanding of corporate decision-making by analyzing the CFOs’ responses in the context of various company characteristics, such as size, P/E ratio, leverage, credit rating, dividend policy, and industry. We also looked for systematic relationships between corporate financial choices and managerial factors, such as the extent of top management’s stock ownership, and the...
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...practitioners will find it worthwhile to observe how other companies operate and perhaps modify their own practices. It may also be useful for finance academics to consider differences between theory and practice as a reason to revisit the theory. We solicited responses from approximately 4,440 companies and received 392 completed surveys, representing a wide variety of firms and industries.1 The survey contained nearly 100 questions and explored both capital budgeting and capital structure decisions in depth. The responses to these questions enabled us to explore whether and how these corporate policies are interrelated. For example, we investigated whether companies that made more aggressive use of debt financing also tended to use more sophisticated capital budgeting techniques, perhaps because of their greater need for discipline and precision in the corporate investment process. More generally, the design of our survey allowed for a richer understanding of corporate decision-making by analyzing the CFOs’ responses in the context of various company characteristics, such as size, P/E ratio, leverage, credit rating, dividend policy, and industry. We also looked for systematic relationships between corporate financial choices and managerial factors, such as the extent of top management’s stock ownership, and the...
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...business environment and financial system in Ethiopia 7 2.4. Points we Agree or Disagree with 7 2.5. One part of the article that helped to understand finance 8 III. Hypothesis Comparison. 8 IV. How the information in the article affect the business manager in us 9 4.1. Becoming a better financial manager 9 4.2. Becoming a better professional 9 4.3. Practicing suggestions in the article 9 4.4. Issues listed by the authors 10 References 13 I. Article Summary 1.1. Article Title: The theory and practice of corporate finance: Evidence from the field 1.2. Authors: John R. Graham and Campbell R. Harvey 1.3. Publication: the article is published in the Journal of Financial Economics, Volume 60, Issue 2, Pages 187-243, dated 31/05/2001. The publisher is North-Holland. 1.4. Reviewer: Group 8 members 1. 1.5. Purpose of the Article The article reports the result of a comprehensive survey on the practice of corporate finance conducted in 1999 G.C by the above mentioned two authors in the USA. Unlike previous similar studies in theory and practice of corporate finance, the article address a broader scope in the field of corporate finance including capital budgeting, cost of capital and capital structure, which according to the authors allows “linking responses of survey participants across areas”. Selecting a large sample of cross-section firms with approximate population size of 4,440, the authors claim to have solicited the response of 392 chief financial officers and to have...
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...accreditation process, and continue to monitor systems to make sure they stay secure. FISMA also requires agencies to conduct an annual inspection that tests for effectiveness. A sample of policies, procedures, and practices are tested to evaluate how effective the program is. B. The Sarbanes-Oxley Act (SOX) was passed into law in 2002 for companies who trade publicly. The law holds board members, specifically chief executive officers (CEOs) and chief financial officers (CFOs) responsible for financial data. CEOs and CFOs must be able to verify financial statements and prove those statements are accurate; if they do not, they will be held liable. 2. Discuss the levels of the CMMI process improvement approach. There are five levels of the Capability Maturity Model Integration. These five levels are: 0: Nonexistent, there are no security features in place 1: Initial, risks are considered only after a threat exploits vulnerabilities. 2: Managed, organization realizes there is a need for security because of risks but a detailed plan is not made; instead responses is reactive to incident. 3: Defined, action is proactive. An organization has policies in place to counter threats. 4: Quantitatively Managed, The organization has formal policies and procedures and performs regular risk assessments and vulnerability assessments. 5: Optimized, has formal processes, and monitors security continuously, also focuses on process improvement. Chapter 4 1. What is Scope and why...
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...Organizational Structure Organizational Structure The following paragraphs will describe the organizational structure of Summerlin Hospital and Medical Center that is part of Universal Health Services. “Universal Health Services, Inc. (UHS) is one of the nation's largest healthcare management companies, operating through its subsidiaries acute care hospitals, behavioral health facilities and ambulatory centers nationwide, in Puerto Rico and the U.S. Virgin Islands. Founded in 1978 by Alan B. Miller, Chairman and CEO, UHS subsidiaries today have more than 65,000 employees. UHS maintains one of the strongest balance sheets and is rated amongst the highest in the hospital services industry by Moody's and Standard & Poor's” (UHS, n.d.). Organizational functions (such as marketing, finance, human resources, and operations) will be discussed to determine the influence they have on how UHS conducts their daily business. While discussing UHS organizational structure, other organizational structures will be compared and contrasted to UHS. Organizational design (such as geographic, functional, customer-based, product, service, hybrid, matrix, marketing channels, and departmentalization) determines what organizational structure is best for any organization. UHS organizational design will be analyzed to ascertain which design is most appropriate for the organization. The three primary organizational structures are functional, matrix, and divisional. UHS utilizes a...
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...The World of International Management From Matrix to Customer- Centric Management at ABB As a global leader in power and automation technologies,ABB serves utility and industry customers across the world. It has 117,000 employees in about 100 countries and generated $31.8 billion in revenue in 2009. It possesses a strong presence in emerging markets,particularly in Asia. ABB was formed as a result of a 1988 merger between two former competitors, the Swedish ASEA AB and the Swiss BBC Brown Boveri Ltd. The Swedish company added its management strength and the Swiss company added its technological and marketing expertise.The new CEO declared that ABB would be “global and local, big and small, radically decentralized but with central control.” To achieve these seemingly competing objectives, ABB’s CEO chose to implement matrix management. Matrix Management Matrix management is an organizational structure that combines two levels of oversight and control. In ABB’s case in 1993, the company was divided into four corporate divisions (Global dimensions) at the same time as it was divided into three geographic regions (Regional dimensions).The Global dimensions were further partitioned into business areas and the Regional dimensions were partitioned into country holdings. See the nearby figure from Germany’s INFO Institut.Thus, employees reported to two superiors, one from their Global Dimension and one from the Regional dimension. Global dimensions were responsible for strategy...
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...organizational, financial, and clinical excellence of INTEGRIS Health. Data for this audit was obtained through interviews with various members of the INTEGRIS Health leadership team including Chris Hammes, COO; Ed Heinen, VP Strategy; and Hardy Watkins, VP Marketing and Corporate Communications. Additional material was obtained through reviewing information provided in the official INTEGRIS Health system strategic plan for 2013 and the INTEGRIS Health website, www.integrisok.com. INTEGRIS Health is Oklahoma’s largest health care organization and is known for providing a wide range of high quality health care services; It is a not-for-profit, non-stock ownership health care system. It is consistently ranked among the top health care systems in the United States. INTEGRIS Baptist Medical Center, the flagship hospital for INTEGRIS, was recently named by US News & World Report Oklahoma’s #1 hospital. The overall satisfaction with this organization is very positive in both the community and among its employees. The positive reputation and transparency of INTEGRIS have made it a reliable source of care for the communities it serves. INTEGRIS relies on its vision, Most Trusted Name in Health Care to continue to work toward a higher level of excellence and accountability to its customers. A 19-member board of directors enables the organization to construct and execute its goals in order to provide better care. INTEGRIS had been involved in many recent projects that will enable...
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...alternatives that individually provide different implications to the case and conclude with some recommendations for the company. Introducing the case, the first section of this report examines current issue of Genzyme, such as diversification and its implications. Science sits at the most basic level of a biotechnology company, followed by diversification, a trend where businesses integrate its daily operation. The development of the issue shows clearly its source. The recommendations are based on the analysis made by an external company, Relational Investor that suggested a path to follow to lift up the decline in the stock price and the business in general. The alternatives are presented in the case as the dilemma the current CEO faces as a response to the recommendation given by Relational Investors. The conclusion highlights the points considered in the recommendations and tries to reconcile them with the different alternatives. Introduction of the case Genzyme Corporation is an American biotechnology company based in Cambridge, Massachusetts. The company is primarily devoted to finding drugs that would cure enzyme...
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...afloat one must constantly look at the organizational structure and review their products or services to make sure they are meeting the public demand and are staying competitive across the market. To do this restructuring the organization is inevitable and below is a brief description of the new organizational structure. • CEO- appointed by the owners Donna Taylor and Phillip Embry. As of right now Taylor has an Operations Manager as the lead heading the company, but by adding a CEO gives the organization a more seasoned individual that is experienced at all levels not just the operational aspect. • Director Ambulance Operations- responsible for ensuring the volunteers and technicians treat patients accordingly to company policy. Also, responsible for the training employees, scheduling employees, and coordinating response procedures and relief efforts. Taylor currently has an operation manager that assumes these responsibilities, but doing this and leading a company can be a huge task for any one individual. By breaking this into one role will simplify the responsibilities and make it more streamlined. This role reports to the CEO. o Within this department will be a Deputy Operations Manager...
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...Midsize pharmaceutical company under the leadership of Jennifer Childs (Owner and CEO). The company has sales offices or manufacturing plants in eight countries. At the October staff meeting the CEO asked three manager to develop a prioritized list of potential projects and to meet with her to sell on their ideas. According to the CEO company profits for the year are expected to be more than 2m$ more than anticipated, the CEO tell them she would like to reinvest this additional project by funding project within the company, that will either increase sales or reduce costs. Further the instructions is that the managers must not assume that the funds will be divided equally amongst the three of them. The CEO further states that she is willing to put all the funds on one project if it seems appropriate. The company has the following key personnel: Julie Chen Manager product development and he has a team of scientists working on a new prescription drug. Tyler Ripken is employed as a manager production at the firm’s largest and oldest manufacturing facility and has been with the company for only 6 months Jeff Mathews Manager operations is responsible for the company’s computers and information systems as well as its accounting operations. Joe Sanchez is a manager of Marketing According to Professor Pieter Steyn of Cranefield College, Managing organisations through projects or through project-portfolios (also known as programmes) is gaining popularity, since it is a management...
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