nep-cfn New Economics Papers
on Corporate Finance
Issue of 2008‒02‒23
three papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Who is the ultimate master of contractual, regulatory, discretionary and residual cash flows? An answer from the standpoint of corporate governance By Rodolfo Apreda
  2. A Real Options Perspective on R&D Portfolio Diversification By Sjoerd van Bekkum; Enrico Pennings; Han Smit
  3. Determinants of corporate financing decisions: a survey evidence from Czech firms By Irena Jindøichovská; Pavel Körner

  1. By: Rodolfo Apreda
    Abstract: This paper sets forth a framework of analysis that links contractual, discretionary, regulatory and residual cash flows with decision rights over them. To attain this purpose, firstly we introduce the standard incremental cash flow model, underlying its main limitations. Secondly, we move on bringing to light cash flows to senior management and directors, as well as the so-often neglected investment portfolio. Next, we settle down to what we are going to call the compact cash flow model that comprises five building blocks, namely those arising out of assets, those addressed to owners, creditors, managers and directors, and lastly the company’s investment portfolio. Afterwards, contractual, discretionary, regulatory and residual cash flows are enlarged upon. Last of all, we focus on decision rights over every constituent of each building block. This issue carries weight in Corporate Governance since stakeholders who claim or exercise decision rights, also could trespass on the rules of the game, becoming better off to the expense and damage of other stakeholders.
    Keywords: corporate governance; contractual, regulatory, discretional and residual cash flows; decision rights; incremental cash flow model
    JEL: G30 G34
    Date: 2008–02
  2. By: Sjoerd van Bekkum (Erasmus University Rotterdam); Enrico Pennings (Erasmus University Rotterdam); Han Smit (Erasmus University Rotterdam)
    Abstract: This paper shows that the presence of conditional staging in R&D (Research & Development) has a critical impact on portfolio risk, and changes diversification arguments when a portfolio is constructed. When R&D projects exhibit option-like characteristics, correlation between projects plays a more complicated role than traditional portfolio diversification would suggest. Real option theory argues that research projects with conditional phases have option-like risk and return properties, and are different from unconditional projects. We show that although the risk of a portfolio always depends on the correlation between projects, a portfolio of conditional R&D projects with real option characteristics has fundamentally different risk than a portfolio of unconditional projects. When conditional R&D projects are negatively correlated, portfolio risk is hardly reduced by diversification. When projects are positively correlated, however, diversification is more effective than these tools predict.
    Keywords: Real Options; Research & Development (R&D); Risk Management; Monte Carlo Simulation
    JEL: G31 G32 O30 O32
    Date: 2007–01–15
  3. By: Irena Jindøichovská (Department of Accounting, Business School, The University of Buckingham, United Kingdom); Pavel Körner (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper investigates the empirical evidence on determinants of financing decisions on the pool of respondents among financial managers of Czech firms. The theoretical section provides an overview of prominent contemporary theories on capital structure. Employing Chi-square Sign Test and Logit regression the empirical analysis provides the evidence how the financial managers perceive particular instruments of internal and external financing. We find, that firms follow pecking order theory for working capital financing, however the arguments for pecking order theory in investment financing are not that strong. Firms prefer retained earnings among internal financing instruments and bank loans and leasing among external financing instruments. Finally, the paper discusses the links with practice and some limitations of the results.
    Keywords: corporate finance, capital structure, trade-off theory, pecking order theory, transition economies, survey
    JEL: G32
    Date: 2008–01

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