Financial Market Assignment

Financial Market Assignment There are various threats to the financial system that policy-makers and business executives should be aware of. This paper is aimed at discussing some of the most essential risks. First of all, one should speak about insider trading or the use of non-public information while purchasing or the stocks of a company.Advertising We will write a custom essay sample on Financial Market Assignment specifically for you for only $16.05 $11/page Learn More This activity can result in the situation when the executives of businesses or financial institutions can disregard the interests of investors and stockholders and put these people at a disadvantage. The members of the general public will not be able to make informed decisions about the performance of various stocks, and they will lose the trust in the financial trust. So, insider trading can destabilize the financial system. In turn, Ponzi schemes can be described as the financial fraud when investors are compensat ed from the money of subsequent investors. This activity lead to the creation of economic bubbles such as dot-com bubbles. The existence of such market can cause panic in the market, and it can lead to the poor performance of financial system. Additionally, tax-evasion can adversely affect the financial system, because this crime can contribute to the budget deficits. In the long term, this activity can lead to the stagnation of the financial system. Apart from that, lack of transparency can be associated with the financial instability because in such an environment investors may not be fully of aware of their risks (Bouvard, 2012). This argument is particularly relevant when one speaks about the trading of credit default swaps in 2005 and 2007 when many investors were not informed about the potential risk. Significant risks can be associated with the securities market. In most cases, the challenges arise in those cases when securities are not backed up by any assets. This argument is particularly important when one speaks about debt securities. Finally, one should speak about such a threat as manipulation of the market or the action that prompts investors to act in a certain way (Misra, 2012). Very often, manipulation creates a demand for certain types of stocks. For example, the Federal Reserve lowered the interest rate for its bonds, and as a result, many investors chose to purchase the stocks of fraudulent companies such as Enron that deliberately mislead the purchasers of their stock. This is one of the main pitfalls that should be avoided. Furthermore, the so-called currency manipulation or intervention can also pose significant threats to the financial system. In some cases, the fiscal authorities can purchase the currency of the country, and it means that the exchange rate does not reflect the real purchasing power of the currency. This activity can mislead investors and businesses who conduct businesses or carry out financial transactions. This is one of the dangers that should not be overlooked by policy-makers and business executives.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Finally, it is important to speak about governmental action or intervention that can adversely affect the financial system because this policy is not usually favored by investors (Beteto, 2012). In particular, one can mention the decision of the Cypriot government to intervene into the activities of the banks. This decision prompted many investors to withdraw their capital from the country, and in the long-term, it can lead to the stagnation of the financial system and the decline of the economy. Reference List Beteto, D. (2012). Government Intervention and Financial Fragility. Web. Bouvard, M. (2012). Transparency in the financial system:rollover risk and crises. Web. Misra, V. (2012). Evidence of market manipulation in the financial crisis. Web.

Salary Negotiation for Women Close the Pay Gap! Part 1

Salary Negotiation for Women Close the Pay Gap! Part 1 Salary Negotiation for Women: Close the Pay Gap! Part 1 The following story, one that a friend related to me just a couple of days ago, has become all-too-familiar: Judy (fictitious name), a part-time assistant in my friend’s office, was offered a full-time position at a salary lower than she deserved, and lower than she had made in previous positions. She felt underappreciated, but wanted the full-time position. So she went home to discuss it with her husband, and came back the next day with her decision. She would accept the job. She did not negotiate, but instead accepted the low-ball offer. What she didn’t know is that the hiring manager had been prepared to give her more- if she had chosen to ask for it. Now, not only is Judy’s salary below her worth, but all her raises in the future will be based on a low starting point. To me, this situation is very sad. You’re probably aware of the pay gap between men and women in the workplace. Perhaps you’ve heard the statistic that women earn 80 cents to every dollar that men earn. The gap persists after controlling for college major, occupation, employment sector, and even requests for time off. Strikingly, this number varies depending on ethnicity: Asian women earn 94 cents to the men’s dollar; white women 82 cents, African American women 68 cents, and Hispanic women 61 cents. So while it does seem that the gap is due to underlying sexism and racism, some of it could also be due to women’s failure to ask for what they deserve. I wonder, are Asian women just better negotiators than their white, African American, and Hispanic peers? While the answer to that question is still a mystery to me, I learned a ton about the topic of salary negotiation in a webinar presented by Professor Deborah Ellis for YaleWomen, Salary Negotiation. Professor Ellis addressed the pay gap for women and how women can start making inroads into that gap through salary negotiation. In salary negotiation, there is nothing to fear but fear itself. Many women are scared that by negotiating they will lose the position completely- but that rarely happens. You might lose the negotiation, but you won’t get a worse package than what you were already offered. And more often, you’ll get what you want. One mid-level lawyer reported: â€Å"I negotiated, and there really wasn’t any back and forth. He just said yes to the request I made.† Hmmm†¦ Maybe men who are hiring are more scared of you than you are of them. They don’t want to lose you and they have already chosen you as the best person for the job. So you are in a position of power. Use it! Salary negotiation works for women! I wish more women understood their position of power and would reap the benefits of salary negotiation. But a study at Carnegie Mellon revealed that only 7% of women grad students negotiated vs. 57% of men. The average salary bump for negotiating was 7.4%, which translated to $500K over the course of a career! If you are a woman who doesn’t negotiate for your salary, I hope you’re getting that women DO succeed in salary negotiation. And you can too. There’s neuroscience at work here: If you think you will do well, you will do better than if you think you won’t do well. One way to convince yourself that you will do well is to know that others have succeeded before you. Women face unique challenges in salary negotiation. Many of the barriers to salary negotiation are internal. I’ve addressed some of those above. Also, women historically have a harder time advocating for themselves than they do for other people- but they are better than men at â€Å"representational negotiation†- fighting to get something for another person. Here’s a nifty trick offered by Professor Ellis: If you think you don’t deserve more for yourself, negotiate for someone else in your life, like your family, or even your dog. But ask! There are also external barriers faced by women. The reality is that women who make demands can be seen as adversarial or confrontational. So how you ask makes a difference. Here are some techniques to work against the negative perceptions that are out there: Don’t make demands in writing. Have a conversation, preferably in person or by Skype. Phone is okay too but it’s great to be able to see each other. Yep. Be friendly. Use â€Å"we† instead of â€Å"I†- make it about the team and working together toward a common cause. Express enthusiasm about the job from the get-go. Never say it’s non-negotiable. Ask questions vs. making demands. Examples: â€Å"Would you consider a salary of $xxx?† â€Å"What would you think of my working from home†¦?† Use humor. Use the power of silence. Let them fill the silence. Overall, keep in mind that the goal for both you and the employer is a continuing relationship. Both of you want to reach an amiable win-win solution. I hope you’re feeling more confident that you can go and negotiate for the compensation you want. Next week, I’ll share more about the nuts and bolts strategy of salary negotiation, which applies to men and women alike.

Manifest destiny and the forcible removal of american indians Research Paper

Manifest destiny and the forcible removal of american indians - Research Paper Example The term Manifest Destiny integrated the nationalist concepts of Anglo-Saxon superiority with capitalist expansion of territory, â€Å"ideas which had deep roots in American political culture† (Nevins 2002: 17). On the other hand, Caldwell (2006) identifies the roots of manifest destiny in religion, the providentially sanctioned Christian destiny territorial conquest going back as far as the Crusades, and â€Å"a God-given right to any land occupied by non-Christian peoples† (p.84). The extensive American efforts at expansion included in addition to the Louisiana Purchase and the acquisition of the lands of the Mexican cession, internal expansion as American settlers moved westward during the California gold rush (Joy, 2003) Thesis Statement: The purpose of this paper is to investigate the concept of Manifest Destiny in 19th century American history, and its role in America’s rise from a colony to a super power. Further, the extent to which manifest destiny was r eflected in domestic policy by the country’s government will be identified. The forcible removal of American Indians, attempts to civilize them, and Americans’ seizing of Mexican land, and waging war on Mexico will be discussed. The underlying roots of European racism and imperialism fuelling manifest destiny will be examined. Manifest Destiny and Westward Expansion in America From the 14th century to as late as the 1840s, Europeans fled to the New World of America in search of religious freedom and a new life. There was westward expansion in the 19th century because the population density in the industrial towns in the east was increasing tremendously by growing numbers of Europeans who entered America at the eastern seaboard. Moreover, the gold rush in the western region particularly in California, as well as news of fertile soil and plentiful opportunities were powerful motivators to move westwards. Consequently, the Americans found it necessary to spread westward i n search of new land to cultivate, to build on, and new livelihood to undertake. This westward expansion was termed as manifest destiny by Anglos were the whites arriving in California from the eastern towns in the 19th century. Through close association and marriage allegiance with the California elite the white settlers acquired great wealth and political power (Mountjoy 2009). Notions of national superiority form a significant reason for the concept of Manifest Destiny to take shape and to promote westward expansion towards new opportunities. According to Caldwell (2006) the reasons for America’s notions of superiority include myths of the unique regenerative power of the new land of America that the Europeans made their home; from Americans’ self developed visions of being the people chosen by God to utilize the abundance of natural resources; of being given the mission to spread civilization in underdeveloped areas, and of being granted the high destiny of spreadi ng westward for achieving profit and prosperity. Americans’ sense of supremacy is also rooted in their ability to succeed as immigrants through self-sufficiency, confidence, self-reliance; their realization of the abundance of natural wealth in the land; and their view of the universality of American ideology. Expansionist Theory, Racism and Imperialism in Manifest Destiny American Indians who were the original natives of the land were marginalized and every

Russian Security Strategy of 2007, in regard to the new NATO strategic Essay

Russian Security Strategy of 2007, in regard to the new NATO strategic concept - Essay Example Russia seeks to create a regional security and cooperation system that differs from that of the West so as to ensure Euro-Atlantic regional unity3. The country has adamantly rejected NATO’s (North Atlantic Treaty Organization) further expansion, more so with respect to Georgia and Ukraine. The country seeks to engage several Eastern countries including China, India and Troika in alliances. In this respect, the country intends to oversee the creation of the Collective Security Treaty Organization (CSTO)4. This organization is an alliance of seven countries that are members of the Commonwealth of Independent Sates (CIS). NATO’s new Strategic Concept outlines the roadmap for the security of its member states for the next decade, alliances being one of its areas of core focus5. The Concept focuses on the need for NATO to see the formation of alliances that will see the military based organization maintain its capacity to ensure international stability and collective defence . The Strategic Concept furthermore demands the formation of alliances that will invest in major capabilities to counter or otherwise contain emerging threats and to gain defence against cyber and ballistic missile attacks.

Jose Rizal Life in Dapitan Essay Example for Free

Jose Rizal Life in Dapitan Essay The El Filibusterismo is the sequel of the Noli Me Tangere. Both nationalistic novels were written by Dr. Jose Rizal. In Noli Me Tangere, Rizal described the full extent of slavery and abuse suffered by the native Indios at the hands of Spanish authorities. Hence in this second book, Rizal pictured a society at the brink of revolution. The Indios have started to adapt liberal ideas and guerrilla factions have started to revolt against the government. The advent of the novel starts 13 years after the events in the Noli Me Tangere, Juan Crisostomo Ibarra orchestrated a plot of evil means but heroic desires. During his travels in Europe, Ibarra changed his name to Simoun. He becomes a renowned jeweler thus his wealth grew further. He started to make new connections with the illustrious societal personalities in Spain. With his influence, he helped a military colonel to rise the ladder and be promoted as captain general of the colonial territory, the Philippines. For Simoun, it was all planned. Upon his return in the Philippines, he was dubbed as his black eminence. People saw him as an influential figure whom his majesty consults whenever decisions are to be made. After all, his majesty, the captain general owed so much to Simoun. Simoun wants to take revenge and bring back the love of Maria Clara who now resides at the convent. The jeweler was famed for his wealth and power. Hence, no one thought that the opportunists and fearsome Simoun was the same idealistic Ibarra of the past. Simoun started to look for followers. He found his allies with the oppressed and enslaved. He form an alliance with Kabesang Tales group, an outlaw whose land was grabbed by the friars corporation. He then, looks for more men. He searched the villages looking for strong willed men who have a gripe on the government. Simoun, using the influence he has on the captain general, ordered stricter and more abusive government policies a move that will make the people angrier. This was the plot of Simoun, to use the peoples hatred against the government to his advantage. Simoun also ordered attacks that will backfire and weaken the governments military forces. However, the revolution scheduled at the night of a musical play in Manila didnt come into fruition. Months, later another plan was made. At the grand wedding of Juanita Pelaez, the son of a successful businessman and the beautiful Paulita Gomez, Simoun insisted to take charge in the decorating. Simoun knew that the feast would be attended by friars, government officials and prominent figures the same people who wrecked havoc to his life. Beneath the beautiful decorations and lighting were sacks of gun powder. The whole house was filled with explosives. Simoun formed his own army of the oppressed and enslaved and with the help of government soldiers and outlaws whom he commissioned, they will start a bloody revolution. The mission, to kill all Spanish authorities and to take control of the country. At the wedding, Simoun puts a beautiful lamp at the center of the table carved with gold linings and other kind of gems and jewelries. Simoun left as soon as delivering his gift, the lamp. It was a festive celebration but unknown to the guests, the lamp is a time bomb that will explode once lifted. It will result into a huge explosion that will be a signal to Simouns troops to simultaneously attack Manila. Just before the lamp explodes, a piece of mysterious paper bearing the message You will die tonight was being passed. It was signed by Juan Crisostomo Ibarra. Father Salvi confirmed that it was the real signature of Ibarra, a long-forgotten filibuster. The guests at the wedding were all frightened. Slowly, the lamps light started to diminish and soon one will lift it and will cause a huge explosion. However, a Isagani, a student and friend of the newly-weds knew the plot and because of his undying love to Paulita threw the lamp before it explodes. After the wedding, the plot was unraveled and a shoot-to-kill order for Simoun was commissioned. Hence, Simoun, the sly fox that he is, makes sure that he wont get caught alive. He drank a poison and as it effects started to take toll on his body, he was able to confess his plans and real name to a Filipino priests. Characters Simounben zayb Basilioplacido penitente Isaganiquiroga Kabesang talesold man selo Don custodiofather fernandez Paulita Gomezattorney pasta Father florentinocaptain-general Hulipadre sibyla What is the climax of el filibusterismo? the climax of the story of El Filibusterismo found in kabanata 35 in titled ANG PISTA What are the moral values of el filibusterismo? El Filibusterismo was Rizals second novel published in Ghent, Belgium in 1891 with the financial help of Valentin Ventura. It is a sequel to his first novel, Noli Me Tangere. The main character of El Filibusterismo is Simoun, a rich jeweler from Cuba. He was Crisostomo Ibarra of Noli Me Tangere who, with Elias help, escaped from the pursuing soldiers at Laguna Lake, dug up his buried treasure, and sailed to Cuba where he became rich and made friends with many Spanish officials. After many years, he returns to the Philippines in disguise. He has become so powerful because he became an adviser of the governor-general. On the outside, Simoun is a friend of Spain. But deep in his heart, he is secretly planning a bitter revenge against the Spanish authorities. His obsessions are 1) to incite a revolution against the Spanish authorities, and 2) to rescue Maria Clara from the Sta.Clara convent. El Filibusterismo (Subversion) is the second novel by Jose Rizal, national hero of the Philippines. Written as a sequel to the Noli Me Tangere, it focuses more on dark themes and appears to favor revolution (at least as far as the main character is concerned) -by: Manuel Viloria A Filipino Family on the Web El Filibusterismo (lit. Spanish for The Filibustering[1]), also known by its English alternate title The Reign of Greed,[2] is the second novel written by Philippine national hero Josà © Rizal. It is the sequel to Noli Me Tangere and like the first book, was written in Spanish. It was first published in 1891 in Ghent, Belgium.

The Role of Economics in Sports :: Economy Papers

"Money makes the world go 'round." Sports could not exist without the presence of money. You have high paid athletes asking for multi-million dollar contacts, while at the same time you have doctors not even making close to that amount. There are corporations buying out sports teams, buying stadiums, and buying everything that has to do with sports. Someone may ask why they do this. Sports are one of the most profitable industries in the world. Everyone wants to get their hand on a piece of the action. Those individuals and industries that spend hundreds of millions of dollars on these sports teams are hoping to make a profit, but it may be an indirect profit. It could be a profit for the sports club, or it could be a promotion for another organization (i.e. Rupert Murdoch, FOX). The economics involved with sports has drastically changed over the last ten years. In the United States, we spend about 13% of all money on sports and entertainment. Sports has obviously done its job; entertained and drained money out of our pockets. A young boy goes up to his mother and says, "Mommy! I want to be a baseball player!" If this was said in 1930, the boy's mother probably would have told the boy, "That's not future for you! You need to get a real job and make good money." If this was said in 1999, the boy's mother probably would have said, "Let's go to the store and buy you a baseball glove so you can start to practice." It is visible to every sports fan that in the past few decades, sports has undergone a whole new renovation. It isn't just an activity that is played for fun. It is a business in which owner and players attempt to coincide. It is a business where TV controls fan interest. It is also a business that affects many people's lives, both monetary and living aspects. There are many aspects that are involved with the economics of sport. Each one having unique qualities that adds to the greatest source of entertainment. Economics is the study of how best to allocate scarce resources throughout an entire market. Economics affect our lives on a daily basis, whether it is on a business level or a personal level.

Family Guy vs the Simpsons

Khadijah Smith Enc 1101 Dr. Ford Family Guy VS. The Simpsons In comparison, both shows are great. Both shows have a dad that most of the time doesn’t have a clue and wives that make excuses for their behaviors but still love them more than anything. Both shows also have 3 children involved and a pet. They both seem to be either middle or lower middle class families. The contrast for the two shows would definitely have to be the type of humor used on the shows. The Simpsons has more a an entire family appeal to it while Family Guy has a lot more adult humor that parents today don't want their kids to watch or be subjected to.I personally would not care if my kids were to watch either one of the shows because they would know that they are just TV shows and that behavior on TV is not to be repeated in real life. Meaning, I would teach my kids what’s acceptable for them to do and say and what's not. If I had to choose which show is funnier, I'd have to say Family Guy, but t hat is just my opinion. I just haven't seen The Simpsons in a while and Family Guy makes me laugh no matter how many times I watch each episode. The Simpsons is the archetype for cartoon serial satire. It started it all.Which is evident in the Southpark episode the ‘Simpsons did it' Plus Simpsons just had its 20th season which is nuts. I find lately the Simpsons has transitioned more towards a Family Guy model, having more random pop ins then full on episodes like their earlier seasons. ( Alec Niolan, Little Known Facts About â€Å"the Simpsons†) With 20 years of material they have covered almost everything already so staying fresh is hard. Family Guy has a liberal/progressive agenda and the creator can't keep his work separate from his politics. Family Guy is much more random, and hits a lot more obscure references to pop culture.The humor is more adult in Family Guy as well. The Simpson's daughter is intelligent, witty and misunderstood for her so-called liberal views , in my opinion. While Meg from family guy is awkward, unappreciated and abused. Bart and Chris are very similar, while Bart has more intelligence he just prefers antics. Chris is blessed with a much slower mind set. While the wives both nag, Lois is the more active while Marge is usually more passive. Whichever you prefer these two TV watching, middle class, beer drinking, couple canoodling; antic driven cartoon families will be on for many more years to come.The Simpsons is happy to take on all political persuasions. Although both shows are equally entertaining, the Simpsons have clear life lessons that are clearly portrayed. Such as, â€Å"I'll keep it short and sweet. Family. Religion. Friendship. These are the three demons you must slay if you wish to succeed in business. † The business world is becoming increasingly more cutthroat. In order to succeed, you have to be willing to give things up. Family only gives you more obligations. Religion makes you feel bad about you r difficult business decisions. And friends, well, in business there are no friends. Facts are meaningless. â€Å"I hope this has taught you kids a lesson: kids never learn. † While we want to believe that our children are smarter than the average nose picker, they all still make the same mistakes. At some point, even though it didn't work out so well for their friends, kids will ride their bike down the stairs, lick the frozen flagpole, and put their hand on the hot burner. Over and over again. †You don't like your job, you don't strike. You go in every day and do it really half-assed. That's the American way. † Company loyalty and job satisfaction are down.Yet everyone thinks they need the bigger house, the newer car, that fancy new toy. Rather than finding a job they really enjoy, they go to work miserable every day, put in the minimal effort, then go home to lounge in front of their big screen TV and complain because they don't have a bigger one. â€Å"What a day, eh, Millhouse? The sun is out, birds are singing, bees are trying to have sex with them, as is my understanding â€Å". American culture tries to protect our children from all things sexual. Racy television shows are put on late night when children are supposed to be asleep.Magazines are put on the top shelf where children can't reach them. While the intention is good, we are deliberately ignoring the fact that our children know all about sex, long before we give them â€Å"The Talk. † However, because we are not giving them good, accurate information at the appropriate age, they are becoming more and more confused, which is leading to an increase in STDs and teen pregnancy. Perhaps it’s time to reevaluate how parents approach the subject of sex. â€Å"I feel that if a gun is good enough to protect something as important as a bar, then it’s good enough to protect my family†.Gun control is a hot topic brought up at every election. Should we limit ac cess to them so the bad guys can't get one? Should we expand access to them so that the innocent people can protect themselves? Either way someone is bound to get hurt. We can only hope that it's the bad guys. The Simpsons are more original and portray clearer plots, as well as it is more clean when it comes to verbal usage and here are numerous amounts of lesson that are easily comprehended, even if it can be a bit sarcastic. In addition, therefore if there was a decision to be made between these two animated TV shows, the Simpsons would be a better choice.

Agency Costs and Corporate Governance Mechanisms

Agency costs and corporate governance mechanisms: Evidence for UK firms Chrisostomos Florackis and Aydin Ozkan* University of York, UK Abstract In this paper, we aim to extend the empirical literature on the determinants of agency costs by using a large sample of UK listed firms. To do so, we employ two alternative proxies for agency costs: the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses (SG&A) to total sales. In our analysis, we control for the influence of several internal governance mechanisms or devices that were ignored by previous studies.Also, we examine the potential interactions between these mechanisms and firm growth opportunities in determining agency costs. Our results reveal that the capital structure characteristics of firms, namely bank debt and debt maturity, constitute two of the most important corporate governance devices for UK companies. Also, managerial ownership, managerial compensation and ownership concentration seem to play an important role in mitigating agency costs. Finally, our results suggest that the impact exerted by internal governance mechanisms on agency costs varies with firms’ growth opportunities.JEL classification: G3; G32 Keywords: Agency costs; Growth opportunities; Internal Corporate Governance Mechanisms. * Corresponding author. Department of Economics and Related Studies, University of York, Heslington, York, YO10 5DD, UK. Tel. : + 44 (1904) 434672. Fax: + 44 (1904) 433759. E-mail: [email  protected] ac. uk. We thank seminar participants at University of York, and the 2004 European Finance Association Meetings for helpful comments and suggestions. 1 1. Introduction Following Jensen and Meckling (1976), agency relations within the firm and costs associated with them have been extensively investigated in the corporate finance literature.There is a great deal of empirical work providing evidence that financial decisions, investment decision s and, hence, firm value are significantly affected by the presence of agency conflicts and the extent of agency costs. The focus of these studies has been the impact of the expected agency costs on the performance of firms. 1 Moreover, the implicit assumption is that, in imperfect capital markets, agency costs arising from conflicts between firms’ claimholders exist and the value of firms decreases if the market expects that these costs are likely to be realised.It is also assumed that there are internal and external corporate governance mechanisms that can help reduce the expected costs and their negative impact on firm value. For example, much of prior work on the ownership and performance relationship relies on the view that managerial ownership can align the interests of managers and shareholders and hence one would observe a positive impact exerted by managerial shareholdings on the performance of firms. The positive impact is argued to be due to the decrease in the exp ected costs of the agency conflict between managers and shareholders.Despite much valuable insights provided by this strand of literature, however, only very few studies directly tackle the measurement issue of the principal variable of interest, namely agency costs. Notable exceptions are Ang et al. (2000) and Sign and Davidson (2003), which investigate the empirical determinants of agency costs and focus on the role of debt and ownership structure in mitigating agency problems for the US firms. In doing so, they use two alternative proxies for agency costs: the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses (SG&A) to total sales.In line with the findings of prior research they provide evidence for the view that managerial ownership aligns the interests of managers and shareholders and, hence, reduces agency costs in general. However, there is no consensus on the role of debt in mitigating such problems and associ ated costs. Ang et al. (2000) point out that debt has an alleviating role whereas Sign and Davidson (2003) an aggravating one. The objective of this paper is to extend the investigation of these studies by analysing empirically the determinants of agency costs in the UK for a large sample of 1See, for example, Morck et al. (1988); McConnell and Servaes (1990); and Agrawal and Knoeber (1996) among others. 2 listed firms. Following the works of Ang et al. (2000) and, Sign and Davidson (2003), we model both proxies of agency costs: asset turnover and the (SG&A) ratio. More specifically, we empirically examine the impact of capital structure, ownership, board composition and managerial compensation on the costs likely to arise from agency conflicts between managers and shareholders. In doing so, we also pay particular attention to the role of growth opportunities in influencing the effectiveness of internal governance mechanisms in reducing agency costs. In carrying out the analysis in this paper, we aim to provide insights at least in three important areas of the empirical research on agency costs. First, in investigating the determinants of agency costs, the analysis of this paper incorporates important firmspecific characteristics (internal corporate governance devices) that possibly affect agency costs but were ignored by previous studies.For example, we explore the role the debt maturity structure of firms can play in controlling agency costs. It is widely acknowledged that short-term debt may be more effective than long-term debt in reducing the expected costs of the underinvestment problem of Myers (1977). 3 Accordingly, in our analysis, we consider the maturity structure of debt as a potential governance device that is effective in reducing the expected costs of the agency conflict between shareholders and debtholders. Similar to Ang et al. 2000) that investigate if bank debt creates a positive externality in the form of lower agency costs, we also check i f the source of debt financing matters in mitigating agency problems. Another potentially effective corporate governance mechanism we consider relates to managerial compensation. Recent studies suggest that compensation contracts can motivate managers to take actions that maximize shareholders’ wealth (see, e. g. , Core et al. , 2001; Murphy, 1999 among others). This is based on the view that financial â€Å"carrots† motivate managers to maximize firm value.That is, a manager will presumably be less likely, ceteris paribus, to exert insufficient effort and risk the loss of his job the greater the level of his compensation. Several empirical studies provide evidence for the effectiveness of managerial compensation as a corporate governance mechanism. For instance, 2 As explained later in the paper, the two proxies for agency costs that are used in our analysis are more likely to capture the agency problems between managers and shareholders. However, we do not rule out t he possibility that they may also capture the agency problems between shareholders and debtholders. It is argued that firm with greater growth opportunities should have more short-term debt because shortening debt maturity would make it more likely that debt will mature before any opportunity to exercise the growth options. Consistent with this prediction, there are several empirical debt maturity studies that find a negative relation between maturity and growth opportunities (see, e. g. , Barclay and Smith, 1995; Guedes and Opler, 1996; and Ozkan, 2000 among others). 3 Hutchinson and Gul (2004) find that managers’ compensation can moderate the negative association between growth opportunities and firm value.In this paper, we examine the effectiveness of managerial compensation as a corporate governance mechanism by including the salary of managers in our empirical model. We also acknowledge that there have been concerns about excessive compensation packages and their negativ e impact on corporate performance. Accordingly, we investigate the possibility of a non-monotonic impact the managerial compensation may exert on agency costs. Second, our empirical model captures potential interactions between corporate governance mechanisms and growth opportunities.Following McConnell and Servaes (1995) and Lasfer (2002), we expect the effectiveness of governance mechanisms in reducing agency problems to be dependent on firm’s growth opportunities. In particular, if agency problems are associated with greater information asymmetry (a common problem in high-growth firms), we expect the effectiveness of corporate governance mechanisms in mitigating asymmetric information problems to increase in high-growth firms (Smith and Watts, 1992 and Gaver and Gaver, 1993).However, if, as argued by Jensen (1986), agency problems are associated with conflicts over the use of free cash flow (a common problem in low-growth firms), we expect governance mechanisms that are li kely to mitigate such problems to play a more important role in low-growth firms (Jensen, 1986). Last but not least, in contrast to previous studies that focus on the US market, we provide evidence for UK firms. Although the UK and the US are usually characterized as having a similar â€Å"common law† regulatory system (see, e. g. , La Porta et al. 1998), the UK market bears significant distinguishing characteristics. 4 It is argued that several of these characteristics may contribute to a more significant degree of managerial discretion and, hence, higher level of managerial agency costs. For example, despite the relatively high proportion of shares held by financial institutions, there is a great deal of evidence that financial investors do not take an active role in corporate governance. Similarly, UK boards are usually characterized as corporate devices that provide weak disciplinary function.More specifically, weak fiduciary obligations on directors have resulted in none xecutives playing more an advisory than a monitoring role. 5 Consequently, the investigation of agency issues and the effectiveness of the alternative governance 4 For a more detailed discussion about the characteristics of the prevailing UK corporate governance system see Short and Keasey (1999); Faccio and Lasfer (2000); Franks et al. (2001); and Ozkan and Ozkan (2004). 5 Empirical studies by Faccio and Lasfer (2000), Goergen and Rennebog (2001), Franks et al. 2001) and Short and Keasey (1999) provide evidence on the weak role of institutions and board of directors in reducing agency problems in the UK. 4 mechanisms in the UK, in a period that witnesses an intensive discussion of corporate governance issues, would be of significant importance. Our results strongly suggest that managerial ownership constitutes a strong corporate governance mechanism for the UK firms. This result is consistent with the findings provided by Ang et al. (2000) and Sign and Davidson (2003) for the US fi rms.Ownership concentration and salary also seem to play a significant role in mitigating agency related problems. The results concerning the role of capital structure variables on agency costs are striking. It seems that both the source and the maturity structure of corporate debt have a significant effect on agency costs. Finally, there is strong evidence that specific governance mechanisms are not homogeneous but vary with growth opportunities. For instance, we find that executive ownership is more effective as a governance mechanism for high-growth firms.This result is complementary to the results obtained by Smith and Watts (1992), Gaver and Gaver (1993) and Lasfer (2002), which support the view that high-growth firms are likely to prefer incentive mechanisms (e. g. managerial ownership) whereas low-growth firms focus more on monitoring mechanisms (e. g. short-term debt). The remainder of the paper is organized as follows. In section 2 we discuss the related theory and formulat e our empirical hypotheses. Section 3 describes the way in which we have constructed our sample and presents several descriptive statistics of that.Section 4 presents the results of our univariate, multivariate and sensitivity analysis. Finally, section 5 concludes. 2. Agency costs and Governance Mechanisms In what follows, we will discuss the potential interactions between agency costs and internal corporate governance mechanisms available to firms. Also, we will analyze how firm growth opportunities affect agency costs and the relationship between governance mechanism and agency costs. 2. 1 Debt Financing Agency problems within a firm are usually related to free cash-flow and asymmetric information problems (see, for example, Jensen, 1986 and Myers and Majluf, 1984).It is widely acknowledged that debt servicing obligations help reduce of agency problems of this sort. This is particularly true for the case of privately held debt. For example, bank 5 debt incorporates significant si gnalling characteristics that can mitigate informational asymmetry conflicts between managers and outside investors (Jensen, 1986; Stulz, 1990; and Ross, 1977). In particular, the announcement of a bank credit agreement conveys positive news to the stock market about creditor’s worthiness.Bank debt also bears important renegotiation characteristics. As Berlin and Mester (1992) argue, because banks are well informed and typically small in number, renegotiation of a loan is easier. A bank’s willingness to renegotiate and renew a loan indicates the existence of a good relationship between the borrower and the creditor and that is a further good signal about the quality of the firm. Moreover, it is argued that bank debt has an advantage in comparison to publicly traded debt in monitoring firm’s activities and in collecting and processing information.For example, Fama (1985) argues that bank lenders have a comparative advantage in minimizing information costs and get ting access to information not otherwise publicly available. Therefore, banks can be viewed as performing a screening role employing private information that allows them to evaluate and monitor borrowers more effectively than other lenders. In addition to debt source, the maturity structure of debt may matter. For example, short-term debt may be more useful than long-term debt in reducing free cash flow problems and in signalling high quality to outsiders.For example, as Myers (1977) suggests, agency conflicts between managers and shareholders such as the underinvestment problem can be curtailed with short-term debt. Flannery (1986) argues that firms with large potential information asymmetries are likely to issue short-term debt because of the larger information costs associated with long-term debt. Also, short-term debt can be advantageous especially for high-quality companies due to its low refinancing risk (Diamond, 1991). Finally, if yield curve is downward sloping, issuing sho rt-term debt increases firm value (Brick and Ravid, 1985).Consequently, bank debt and short-term debt are expected to constitute two important corporate governance devices. We include the ratio of bank debt to total debt and the ratio of short-term debt to total debt to our empirical model so as to approximate the lender’s ability to mitigate agency problems. Also, we include the ratio of total debt to total assets (leverage) to approximate lender’s incentive to monitor. In general, as leverage increases, so does the risk of default by the firm, hence the incentive for the lender to monitor the firm6. 6 Ang et al. 2000) focus on sample of small firms, which have do not have easy access to public debt, and examine the impact of bank debt on agency costs. On the contrary, Sign and Davidson (2003) focus on a sample of large firms, which have easy access to public debt, and examine the impact of public debt on 6 2. 2 Managerial Ownership The conflicts of interest between m anagers and shareholders arise mainly from the separation between ownership and control. Corporate governance deals with finding ways to reduce the magnitude of these conflicts and their adverse effects on firm value.For instance, Jensen and Meckling (1976) suggest that managerial ownership can align the interest between these two different groups of claimholders and, therefore, reduce the total agency costs within the firm. According to their model, the relationship between managerial ownership and agency costs is linear and the optimal point for the firm is achieved when the managers acquires all of the shares of the firm. However, the relationship between managerial ownership and agency costs can be non-monotonic (see, for example, Morck et al. , 1988; McConnel and Servaes, 1990,1995 and, Short and Keasey, 1999).It has been shown that, at low levels of managerial ownership, managerial ownership aligns managers’ and outside shareholders’ interests by reducing manager ial incentives for perk consumption, utilization of insufficient effort and engagement in nonmaximizing projects (alignment effect). After some level of managerial ownership, though, managers exert insufficient effort (e. g focus on external activities), collect private benefits (e. g. build empires or enjoy perks) and entrench themselves (e. g. undertake high risk projects or bend over backwards to resist a takeover) at the expense of other investors (entrenchment effect).Therefore the relationship between the two is non-linear. The ultimate effect of managerial ownership on agency costs depends upon the trade-off between the alignment and entrenchment effects. In the context of our analysis we propose a non-linear relationship between managerial ownership and managerial agency costs. However, theory does not shed much light on the exact nature of the relationship between the two and, hence, we do not know which of the effects will dominate the other and at what levels of manageria l ownership.We, therefore, carry out a preliminary investigation about the pattern of the relationship between managerial ownership and agency costs. Figure 1 presents the way in which the two variables are associated. [Insert Figure 1 here] agency costs. Our study is more similar to that of Ang et al (2000) given that UK firms use significant amounts of bank debt financing (see Corbett and Jenkinson, 1997). 7 Clearly, at low levels of managerial ownership, asset turnover and managerial ownership are positively related. However, after managerial ownership exceeds the 10 per cent level, the relationship turns from positive to negative.A third turning point is that of 30 percent after which the relationship seems to turn to positive again. Consequently, there is evidence both for the alignment and the entrenchment effects in the case of our sample. In order to capture both of them in our empirical specification, we include the level, the square and the square of managerial ownership i n our model as predictors of agency costs. 2. 3 Ownership Concentration A third alternative for alleviating agency problems is through concentrated ownership.Theoretically, shareholders could take themselves an active role in monitoring management. However, given that the monitoring benefits for shareholders are proportionate to their equity stakes (see, for example, Grossman and Hart, 1988), a small or average shareholder has little or no incentives to exert monitoring behaviour. In contrast, shareholders with substantial stakes have more incentives to supervise management and can do so more effectively (see Shleifer and Vishny, 1986; Shleifer and Vishny, 1997 and Friend and Lang, 1988).In general, the higher the amount of shares that investors hold, the stronger their incentives to monitor and, hence, protect their investment. Although large shareholders may help in the reduction of agency problems associated with managers, they may also harm the firm by causing conflicts between large and minority shareholders. The problem usually arises when large shareholders gain nearly full control of a corporation and engage themselves in self-dealing expropriation procedures at the expense of minority shareholders (Shleifer and Vishny, 1997).Also, as Gomez (2000) points out, these expropriation incentives are stronger when corporate governance of public companies insulates large shareholders from takeover threats or monitoring and the legal system does not protect minority shareholders because either of poor laws or poor enforcement of laws. Furthermore, the existence of concentrated holdings may decrease diversification, market liquidation and stock’s ability to grow and, therefore, increase the incentives of large shareholders to expropriate firm’s resources.Several empirical studies provide evidence consistent with that view (see, for example, Beiner et al, 2003). In order to test the impact of ownership concentration on agency costs, we include a var iable that refers to the sum of stakes of shareholders with equity stake greater than 3 8 per cent in our regression equation. The results remain robust when the threshold value changes from 3 per cent to 5 per cent or 10 per cent. 2. 4 Board of Directors Corporate governance research recognizes the essential role performed by the board of directors in monitoring management (Fama and Jensen, 1983; Weisbach, 1988 and Jensen, 1993).The effectiveness of a board as a corporate governance mechanism depends on its size and composition. Large boards are usually more powerful than small boards and, hence, considered necessary for organizational effectiveness. For instance, as Pearce and Zahra (1991) point out, large powerful boards help in strengthening the link between corporations and their environments, provide counsel and advice regarding strategic options for the firm and play crucial role in creating corporate identity. Other studies, though, suggest that large boards are less effecti ve than large boards.The underlying notion is that large boards make coordination, communication and decision-making more cumbersome than it is in smaller groups. Recent studies by Yermack, 1996; Eisenberg et al. , 1998 and Beiner et al, 2004 support such a view empirically. The composition of a board is also important. There are two components that characterize the independence of a board, the proportion of non-executive directors and the separated or not roles of chief executive officer (CEO) and chairman of the board (COB).Boards with a significant proportion of non-executive directors can limit the exercise of managerial discretion by exploiting their monitoring ability and protecting their reputations as effective and independent decision makers. Consistent with that view, Byrd and Hickman (1992) and Rosenstein and Wyatt (1990) propose a positive relationship between the percentage of non-executive directors on the board and corporate performance. Lin et al. (2003) also propose a positive share price reaction to the appointment of outside directors, especially when board ownership is low and the appointee possesses strong ex ante monitoring incentives.Along a slightly different dimension, Dahya et al. (2002) find that top-manager turnover increases as the fraction of outside directors increases. Other studies find exactly the opposite results. They argue that non-executive directors are usually characterized by lack of information about the firm, do not bring the requisite skills to the job and, hence, prefer to play a less confrontational role rather than a more critical monitoring one (see, for example, Agrawal and Knoeker, 1996; Hermalin 9 nd Weisbach, 1991, and Franks et al. , 2001)7. As far as the separation between the role of CEO and COB is concerned, it is believed that separated roles can lead to better board performance and, hence, less agency conflicts. The Cadbury (1992) report on corporate governance stretches that issue and recommends that C EO and COB should be two distinct jobs. Firms should comply with the recommendation of the report for their own benefit. A decision not to combine these roles should be publicly explained.Empirical studies by Vafeas and Theodorou (1998), and Weir et al. (2002), though, which study that issue for the case of the UK market, provide results that do not support Cadbury’s stance that the CEO – COB duality is undesirable. In the context of the UK market, UK boards are believed to be less effective than the US ones. For instance,. To test the effectiveness of the board of directors in mitigating agency problems we include three variables in our empirical model: a) the ratio of the number of non-executive directors to he number of total directors, b) the total number of directors (board size) and c) a dummy variable which takes the value of 1 when the roles of CEO and COB are not separated and 0 otherwise. 2. 5 Managerial Compensation Another important component of corporate g overnance is the compensation package that is provided to firm management. Recent studies by Core et al. (2001) and Murphy (1999) suggest, among others, that compensation contracts, whose use has been increased dramatically during the 90’s, can motivate managers to take actions that maximize shareholders’ wealth.In particular, as Core et al. (2001) point out, if shareholders could directly observe the firm’s growth opportunities and executives’ actions no incentives would be necessary. However, due to asymmetric information between managers and shareholders, both equity and compensation related incentives are required. For example, an increase in managerial compensation may reduce managerial agency costs in the sense that satisfied managers will be less likely, ceteris paribus, to utilize insufficient effort, perform expropriation behaviour and, hence, risk the loss of their job.Despite the central importance of the issue, only a few empirical studies exa mine the impact of managerial compensation components on corporate performance. For example, Jensen and Murthy 7 Such a result may be consistent with the governance system prevailing in the UK market given the fact that UK legislation encourages non-executive directors to be inactive since it does not impose fiduciary obligations on them. Also, UK boards are dominated by executive directors, which have less monitoring power.Franks et al. (2001) confirm this view by providing evidence on a non-disciplinary role of nonexecutive directors in the UK. 10 (1990) find a statistically significant relationship between the level of pay and performance. Murphy (1995), finds that the form, rather than the level, of compensation is what motivates managers to increase firm value. In particulars, he argues that firm performance is positively related to the percentage of executive compensation that is equity based.More recently, Hutchinson and Gul (2004) analyze whether or not managers’ comp ensation can moderate the negative association between growth opportunities and firm value8. The results of this study indicate that corporate governance mechanisms such as managerial remuneration, managerial ownership and non-executive directors possibly affect the linkages between organizational environmental factors (e. g. growth opportunities) and firm performance.Finally, Chen (2003) analyzes the relationship between equity value and employees’ bonus. He finds that the annual stock bonus is strongly associated with the firm’s contemporaneous but not future performance. Managerial compensation, though, is considered to be a debated component of corporate governance. Despite its potentially positive impact on firm value, compensation may also work as an â€Å"infectious greed† which creates an environment ripe for abuse, especially at significantly high levels.For instance, remuneration packages usually include extreme benefits for managers such as the use of private jet, golf club membership, entertainment and other expenses, apartment purchase etc. Benefits of this sort usually cause severe agency conflicts between managers and shareholders. 9 Therefore, it is possible that the relationship between compensation and agency costs is non-monotonic. Similar to the case of managerial ownership, we carry out a preliminary investigation about the pattern of the relationship between salary and agency costs.As shown in figure 2, the relationship between salary and agency costs is likely to be non-linear10. In our empirical model, we include the ratio of the total salary paid to executive directors to total assets as a determinant of agency costs. Also, in order to capture potential 8 Rather, the majority of the studies in that strand of literature reverse the causation and examine the impact of performance changes on executive or CEO compensation (see, for example, Rayton, 2003 among others). Concerns about excessive compensation packages and their negative impact on corporate performance have lead to the establishment of basic recommendations in the form of â€Å"best practises† in which firms should comply so as the problem with excessive compensation to be diminished. In the case of the UK market, for example, one of the basic recommendations of the Cadbury (1992) report was the establishment of an independent compensation committee. Also, in a posterior report, the Greenbury (1995) report, specific propositions about remuneration issues were made.For example, an issue that was stretched was the rate of increase in managerial compensation. In the case of the US market, the set of â€Å"best practises† includes, among others, the establishment of a compensation committee so as transparency and disclosure to be guaranteed (same practise an in the UK) and the substitution of stock options as compensation components with other tools that promote the long-term value of the company 10 A similar preliminary ana lysis is carried out so as to check potential non-linearities concerning the relationship between the rest of internal governance mechanisms and agency costs.Our results (not reported) indicate that none of them is related to agency costs in a non-linear way. 11 non-linearities, we include higher ordered salary terms in the regression equation. Finally, we include a dummy variable, which takes the value of 1 when a firm pays options or bonuses to managers and 0 otherwise. Including that dummy variable in our analysis enables us to test whether or not options and bonuses themselves provide incentives to managers.As Zhou (2001) points out, ignoring options is likely to incur serious problems unless managerial options are either negligible compared to ownership or almost perfectly correlated with ownership. [Insert Figure 2 here] 2. 6 Growth Opportunities The magnitude of agency costs related to underinvestment, asset substitution and free cash flow differ significantly across high-gro wth and low-growth firms. In the underinvestment problem, managers may decide to pass up positive net present value projects since the benefits would mainly accrue to debt-holders.This is more severe for firms with more growth-options (Myers, 1977). Asset substitution problems, which occur when managers opportunistically substitute higher variance assets for low variance assets, are also more prevalent in high-growth firms due to information asymmetry between investors and borrowers (Jensen and Meckling, 1976). High-growth firms, though, face lower free cashlow problems, which occur when firms have substantial cash reserves and a tendency to undertake risky and usually negative NPV investment projects (Jensen, 1986).Given the different magnitude and types of agency costs between high-growth and low-growth firms, we expect the effectiveness of corporate governance mechanisms to vary with growth opportunities. In particular, if agency problems are associated with greater underinvestme nt or information asymmetry (a common problem in high-growth firms), we expect corporate governance mechanisms that mitigate these kinds of problems to be more effective in high-growth firms (Smith and Watts, 1992 and Gaver and Gaver, 1993).However, if, as argued by Jensen (1986), agency problems are associated with conflicts over the use of free cash flow (a common problem in low-growth firms), we expect governance mechanisms that mitigate such problems to play a more important role in low-growth firms (Jensen, 1986). Several empirical studies that model company performance confirm the existence of potential interactions between internal governance mechanism and growth opportunities. For example, McConnell and Servaes (1995) find that the relationship between firm value and leverage is negative for high-growth firms and positive for low12 growth firms.Their results also indicate that equity ownership matters, and the way in which it matters depends upon investment opportunities. Sp ecifically, they provide weak evidence that on the view that the allocation of equity ownership between corporate insiders and other types of investors is more important in low-growth firms. Also, Lasfer (2002) points out that high-growth firm (low-growth firms) rely more on managerial ownership (board structure) to mitigate agency problems. Finally, Chen (2003) finds that the positive relationship between annual stock bonus and equity value is stronger for firms with greater growth opportunities.In order to capture potential interaction effects, we include interaction terms between proxies for growth opportunities and governance mechanisms in our empirical model and, also, employ sample-splitting methods (see, for example, McConnell and Servaes, 1995 and Lasfer, 2002). Based on previous empirical evidence the prediction we make is that mechanisms that are used to mitigate asymmetric information problems (free cash flow problems) are stronger in high-growth firms (low-growth firms). 3. Data and Methodology 3. 1 Data For our empirical analysis of agency costs we use a large sample of ublicly traded UK firms over the period 1999-2003. We use two data sources for the compilation of our sample. Accounting data and data on the market value of equity are collected from Datastream database. Specifically, we use Datastream to collect information for firm size, market value of equity, annual sales, selling general and administrative expenses, level of bank debt, short-term debt and total debt. Information on firm’s ownership, board and managerial compensation structure is derived from the Hemscott Guru Academic Database.This database provides financial data for the UK’s top 300,000 companies, detailed data on all directors of UK listed companies, live regulatory and AFX News feeds and share price charts and trades. Specifically, we get detailed information on the level of managerial ownership, ownership concentration, size and composition of the board, ma nagerial salary, bonus, options and other benefits. Despite the fact that data on directors are provided in a spreadsheet format, information for each item is given in a separate file. This makes data collection for the required variables fairly complicated.For example, in order to get information about the amount of shares held by executive directors we have to combine two different files: a) the 13 file that contains data on the amount of shares held by each director and b) the file that provides information about the type of each directorship (e. g. executive director vs. nonexecutive director). Also, we have to take into account the fact that several directors in the UK hold positions in more than one company. Complications also arise when we attempt to collect information about the composition of the board and the remuneration package that is provided to executive directors.The way in which our final sample is compiled is the following: we start with a total of 1672 UK listed f irms derived from Datastream. This number reduces to 1450 firms after excluding financial firms from the sample. After matching Datastream data with the data provided by Hemscott, the number of firms further decreases to 1150. Missing firmyear observations for any variable in the model during the sample period are also dropped. Finally, we exclude outliers so as to avoid the problem with extreme values. We end up with 897 firms for our empirical analysis. 3. Dependent Variable In our analysis we use two alternative proxies to measure agency costs. Firstly, we use the ratio of annual sales to total assets (Asset Turnover) as an inverse proxy for agency costs. This ratio can be interpreted as an asset utilization ratio that shows how effectively management deploys the firm’s assets. For instance, a low asset turnover ratio may indicate poor investment decisions, insufficient effort, consumption of perquisites and purchase of unproductive products (e. g. office space). Firms wit h low asset turnover ratios are expected to experience high agency costs between managers and shareholders11.A similar proxy for agency costs is also used in the studies of Ang et al. (2000) and Sign and Davidson (2003). However, Ang et al. (2000), instead of using the ratio directly, they use the difference in the ratios of the firm with a certain ownership and management structure and the no-agency-cost base case firm. Secondly, following Sign and Davidson (2003), we use the ratio of selling, general and administrative (SG&A) expenses to sales (expense ratio). In contrast to asset turnover, expense ratio is a direct proxy of agency costs.SG&A expenses include salaries, commissions charged by agents to facilitate transactions, travel expenses for executives, advertising and marketing costs, rents and other utilities. Therefore, expense ratio should 11 The asset turnover ratio may also capture (to some extent) agency costs of debt. For instance, the sales ratio provides a good signa l for the lender about how effectively the borrower (firm) employs its assets and, therefore, affects the cost of capital 14 reflect to a significant extent managerial discretion in spending company resources.For example, as Sign and Davidson (2003) point out, â€Å"management may use advertising and selling expenses to camouflage expenditures on perquisites† p. 7. Firms with high expense ratios are expected to experience high agency costs between managers and shareholders12. 3. 3 Independent Variables Our empirical model includes a set of corporate governance variables related to firm’s ownership, board, compensation and capital structure. Several control variables are also incorporated. For example, we use the logarithm of total assets in 1999 prices as a proxy for firm size (SIZE).Also, we include the market-to-book value (MKTBOOK) as a proxy for growth opportunities. Finally, we divide firms into 15 sectors and include 14 dummy variables accordingly so as to contro l for sector specific effects. Analytical definitions for all these variables are given in Table 1. [Insert Table 1 here] 3. 4 Methodology We examine the determinants of agency costs by employing a cross sectional regression approach. Following Rajan and Zingales (1995) and Ozkan and Ozkan (2004), the dependent variable is measured at some time t, while for the independent variables we use average-past values.Using averages in the way we construct our explanatory variables helps in mitigating potential problems that may arise due to short-term fluctuations and extreme values in our data. Also, using past values reduces the likelihood of observed relations reflecting the effects of asset turnover on firm specific factors. Specifically, the dependent variable is measured in year 2003. For accounting variables and the market-tobook ratio we use average values for the period 1999-2002. Ownership, board and compensation structure variables are measured in year 2002.Given that equity owne rship characteristics in a country are relatively stable over a certain period of time, we do not expect that measuring them in a single year would yield a significant bias in our results (see also La Porta et al. , 2002, among others). 12 An alternative proxy for agency costs between managers and shareholders, which is not used in our paper though, is the interaction of company’s growth opportunities with its free cash flow (see Doukas et al. , 2002). 15 Our approach captures potential interaction effects that may be present.For example, as explained analytically in section 2. 6, the nature of the relationship between the alternative governance mechanisms or devices and agency costs may vary with firm’s growth opportunities. To explore that possibility, we firstly interact our proxy for growth opportunities (MKTBOOK) with the alternative corporate governance mechanisms. In this way, we test for the existence of both main effects (the impact governance variables on age ncy costs) and conditional effects (the impact of growth opportunities on the relationship between governance variables and agency costs).Additionally, we split the sample into high-growth and low-growth firms and estimate our empirical models for each sample separately. Then we check whether the coefficients of governance variables retain their sign and their significance across the two sub-samples. 3. 5 Sample Characteristics Table 2 presents descriptive statistics for the main variables used in our analysis. It reveals that the average values of asset turnover ratio and SG&A ratio are 1. 24 and 0. 45 respectively. The mean value for managerial ownership is 14. 4 per cent of which the average proportion of stakes held by executive (non-executive) directors is 10. 68 per cent (4. 06 per cent). The ownership concentration reaches the level of 37. 19 per cent, on average, in the UK firms. Also, the average proportion of non-executive directors is 49. 5 per cent and the average board size consists of 6. 97 directors. Finally, we were able to identify only 73 firms out of the final 897 (8. 1 per cent) in which the same person held the positions of CEO and COB. As far as the capital structure variables are concerned, the average proportion of bank debt on firm’s capital structure is 55. 5 per cent and that of short-term debt is 49. 53 per cent. Finally, the average market-to-book value is 2. 09. In general, these values are in line with those reported in other studies for UK firms (see, for example, Ozkan and Ozkan, 2004 and Short and Keasey, 1999). [Insert Table 2 here] The results of the Pearson’s Correlation of our variables are reported in Table 3. Our inverse proxy for agency costs, asset turnover, is clearly positively correlated to managerial ownership, executive ownership, salary, bank debt and short-term debt.Ownership concentration is also positively related to asset turnover but the correlation coefficient is not statistically significant. On the contrary, board size and non-executive 16 directors are found to be negatively correlated with asset turnover. Finally, as expected, asset turnover is found to be negatively correlated with both growth opportunities and firm size. The results for our second proxy for agency costs, SG&A, are qualitatively similar with a few exceptions (e. g. short-term debt) but with opposite signs given that SG&A is a direct and not an inverse proxy for agency costs. Insert Table 3 here] 4. Empirical Results 4. 1 Univariate analysis In Table 4 we report univariate mean-comparison test results of the sample firm subgroups categorized on the basis of above and below median values for managerial ownership, ownership concentration, board size, proportion of non-executives, bank debt, short-term debt, total debt, salary, firm size and growth opportunities. Firms with above median managerial ownership (ownership concentration) have asset turnover of 1. 34 (1. 31) whereas those with below median ma nagerial ownership (ownership concentration) have asset turnover of 1. 5 (1. 17). These differences are statistically significant at the 1 per cent (5 per cent) level. The results for executive ownership, salary, bank debt and short-term debt are also found to be statistically significant and are in the hypothesized direction. Specifically, we find that firms with above median values for all the above mentioned variables have relatively higher asset utilization ratios. On the contrary, there is evidence that firms with larger board sizes indicate significantly lower asset utilization ratios. Insert Table 4 here] In panel B of the same table we report the results using SG&A expense ratio as a proxy for agency costs. Results are in general not in line with the hypothesized signs with notable exceptions those of ownership concentration and growth opportunities. For example, firms with above median ownership concentration (MKTBOOK) have an SG&A expense ratio of 0. 41 (0. 55) whereas fir ms with below median ownership concentration (MKTBOOK) have an SG&A expense ratio of 0. 49 (0. 36).However, the results for managerial ownership, salary and short-term debt suggest that these governance mechanisms or devices are not effective in protecting firms from excessive SG&A 17 expenses. Sign and Davidson (2003) obtains a set of similar results, for the case when agency costs are approximated with the SG&A ratio. Overall, the univariate analysis indicates several corporate governance mechanisms or devices, such as managerial ownership, ownership concentration, salary, bank debt and short-term debt, which can help mitigate agency problems between managers and shareholders.Also, consistent with previous studies, we find that the relation between governance variables and agency costs is stronger for the asset turnover ratio than the SG&A expense ratio. The analysis that follows allows us to test the validity of these results in a multivariate framework. 4. 2 Multivariate analysi s In this section we present our results that are based on a cross sectional regression approach. We start with a linear specification model, where we include only total debt from our set of capital structure variables (model 1).In general, the estimated coefficients are in line with the hypothesized signs. Specifically, consistent with the results of Ang et al. (2000) and Sign and Davidson (2003), we find both managerial ownership and ownership concentration to be positively related to asset-turnover. The coefficients are statistically significant at the 5 per cent and 1 per cent significance level respectively. On the contrary, the coefficient for board size is negative, which probably indicates that firms with larger board size are less efficient in their asset utilization.Also, the results for our proxy for growth opportunities (MKTBOOK) support the view that high-growth firms suffer from higher agency costs than low-growth firms. Finally, there is strong evidence that manageria l salary can work as an effective incentive mechanism that helps aligning the interests of managers with those of shareholders. Specifically, the coefficient for salary is positive and statistically significant to the 1 per cent level. Therefore, compared to previous studies, our empirical model provides evidence on the existence of an additional potential corporate governance mechanism available to firms. Insert Table 5 here] In model 2 we incorporate two additional capital structure variables, the ratio of bank debt to total debt and the ratio of short-term debt to total debt, in order to test whether debtsource and debt-maturity impacts agency costs. Also, we split managerial ownership into executive ownership (the amount of shares held by executive directors) and non-executive 18 ownership (the amount of shares held by non-executive directors). We do this because we expect that equity ownership works as a better incentive mechanism in the hands of executive directors rather in t he hands of non-executive directors.According to our results, bank debt is positively related to asset turnover. Also, in addition to debt source, the maturity structure of debt seems to have a significant effect on agency costs. The coefficient of short-term debt is positive and statistically significant at the 1 per cent significance level. Furthermore, there is evidence that from total managerial ownership, only the amount of shares held by executive directors can enhance asset utilization and, hence, align the interest of managers with those of shareholders.In model 3 we estimate a non-linear model by adding the square of salary. As explained earlier in the paper, a priori expectations, which are supported by preliminary graphical investigation, suggest that the relationship between asset turnover and salary can be non-monotonic. Our results provide strong evidence that the relationship between salary and asset turnover is non-linear. In particular, at low levels of salary, the relationship between salary and asset turnover is positive. However, at higher levels of salary, the relationship becomes negative.This result is consistent with studies that suggest that extremely high levels of salary usually work as an â€Å"infectious greed† and create agency conflicts between managers and shareholders. The coefficients of the remaining variables are similar to those reported in models 1 and 2. Finally, in model 4 we allow for a non-linear relationship between executive ownership and agency costs. However, our results do not support such a relationship and, therefore, the square term in our following models13.To sum up, the results of Table 5 indicate that managerial ownership (executive ownership), ownership concentration, salary (when it is at low levels), bank debt and short-term debt can help in mitigating agency problems by enhancing asset utilization. Also, the coefficients for the control variables market to book and firm size, negative and positiv e respectively, suggest that smaller and non- growth firms are associated with reduced asset utilization ratio and, hence, more severe agency problems between managers and shareholders.As discussed earlier in the paper, there is a possibility that the nature of the relationship between the alternative governance mechanisms or devices and agency costs varies with firm’s growth opportunities. In Panel A of Table 6, we explore such a In trial regressions, which are not reported, the cubic term of executive ownership is also included in our model. Once more, the results do not support the existence of a non-monotonic relationship. 13 19 possibility by interacting those governance mechanisms found significant in models 1-4 with growth opportunities, proxied by market-to-book ratio.Our empirical results support the existence of two interaction effects. We find that executive ownership is an effective governance mechanism especially for high-growth firms (the coefficient EXECOWNER* MKTBOOK is positive and statistically significant). This result is consistent with the study of Lasfer (2002), which suggests that the positive relationship between managerial ownership and firm value is stronger in high-growth firms. On the contrary, the coefficient SHORT_DEBT*MKTBOOK is found to be negative and statistically significant.This means that the efficiency of short-term debt in mitigating agency problems is lower for high-growth firms. A possible explanation may be that short-term debt basically mitigates agency problems related to free cash flow. Given that high-growth firms do not suffer from severe free cash-flow problems (but mainly from asymmetric information problems), the efficiency of short-term debt as governance device decreases for these firms. One could argue, though, that short-term debt should be more important for the case of highgrowth firms since it helps reduce underinvestment problems.However, it seems that this effect is not very strong for the case in our sample. A similar result is obtained in McConnell and Servaes (1995) who find that the relationship between corporate value and leverage is positive (negative) for low-growth (high-growth) firms14. [Insert Table 6 here] Secondly, we use the variable MKTBOOK so as two split the sample into two subsamples. We label the upper 45 per cent in terms of MKTBOOK as â€Å"high-growth firms† and the lower 45 per cent as â€Å"low-growth firms†. Then, we re-estimate our basic model for the two sub-samples separately (Table 6, panel B).The results of this exercise confirm the existence of an interaction effect between executive ownership and asset turnover. In particular, the coefficient of EXECOWNER is positive and statistically significant only in the case of the sample that includes only high-growth firms. As far as short-term debt is concerned, it is found to be positive and statistically significant in both samples. 14 The idea in McConnell and Servaes (1995) is that d ebt has both a positive and a negative impact on the value of the firm because of its influence on corporate investment decisions.What possibly happens is that the negative effect of debt dominates the positive effect in firms with more positive net present value projects (i. e. , high-growth firms) and that the positive effect will dominate the negative effect for firms with fewer positive net present value projects (i. e. , low-growth firms). 20 To summarize, the results of our multivariate analysis suggest, among others, that executive ownership and ownership concentration can work as effective governance mechanisms for the case of the UK market.These results are in line with the ones reported by the studies Ang et al. (2000) and sign and Davidson (2003). Also, we find that, in addition to the source of debt, the maturity structure of debt can help to reduce agency conflicts between managers and shareholders. The fact that previous studies have ignored the maturity structure of d ebt may partly explain their contradicting results concerning the relationship between capital structure and agency costs. Furthermore, we find that salary can work as an additional mechanism that provides incentives to managers to take valuemaximizing actions.However, its impact on asset turnover is not always positive i. e. the relationship between asset turnover and salary is non-monotonic. Finally, there is strong evidence that the relationship between several governance mechanisms and agency costs varies with growth opportunities. Specifically, our results support the view that the positive relationship between executive ownership (short-term debt) is stronger for the case of high growth (low growth) firms. 4. Robustness checks Given the significant impact of growth opportunities on agency costs (main impact) and on the impact of other corporate governance mechanisms (conditional impact), we further investigate the relationship between growth opportunities, governance mechanism s and agency costs. At first, we substitute the variable MKTBOOK with an alternative proxy for growth opportunities. The new proxy is derived after employing common factor analysis, a statistical technique that uses the correlations between observed variables to estimate common factors and the structural relationships linking factors to observed variables.The variables which are used in order to isolate latent factors that account for the patterns of colinearity are following variables: MKTBOOK = Book value of total assets minus the book value of equity plus the market value of equity to book value of assets; MTBE = Market value of equity to book value of equity; METBA = Market value of equity to the book value of assets; METD = Market value of equity plus the book value of debt to the book value of assets. 21 These variables have been extensively used in the literature as alternative proxies for growth opportunities and Tobin’s Q.As shown in Table 7 (panel A) all these varia bles are highly correlated to each other. In order to make sure that principal component analysis can provide valid results for the case of our sample, we perform two tests in our sample, the Barlett’s test and the Kaiser-Meyer-Olkin test. The first test examines whether or not the intercorrelation matrix comes from a population in which the variables are noncollinear (i. e. an identity matrix). The second test is a test for sampling adequacy.The results from these tests, which are reported in panel B, are encouraging and suggest that common factor analysis can be employed in our sample since all the four proxies are likely to measure the same â€Å"thing† i. e. growth opportunities. Panel C presents the eigenvalues of the reduced correlation matrix of our four proxies for growth opportunities. Each factor whose eigenvalue is greater than 1 explains more variance than a single variable. Given that only one eigenvalue is greater than 1, our common factor analysis provid es us with one factor that can explain firm growth opportunities.Clearly, as shown in panel D, the factor is highly correlated with all MKTBOOK, MTBE, METBA and METD. We name the new variable GROWTH and use it as an alternative proxy for growth opportunities. Descriptive statistics for the variable GROWTH are presented in panel D. [Insert Table 7 here] Table 8 presents the results of cross-section analysis after using the variable GROWTH as proxy for agency costs. In general, the results of such a task are similar to the ones reported previously.For instance, there is strong evidence that executive ownership, ownership concentration, salary, short-term debt and, to some extent, bank debt are positively related to asset turnover. Also, there is some evidence supporting a non-linear relationship between salary and asset turnover. Finally, our results clearly indicate that agency costs differ significantly across high-growth and low-growth firms and, most importantly, there is a signif icant interaction effect between growth opportunities and executive ownership.However, we can not provide any evidence on the existence of an interaction between asset turnover and short-term debt. [Insert Table 8 here] 22 In panel B of table 8, we split our sample into high-growth and low-growth firms on the basis of high and low values for the variable GROWTH. Specifically, we label the upper 45 per cent in terms of GROWTH as â€Å"high-growth firms† and the lower 45 per cent as â€Å"low-growth firms†. Then we estimate our basic model for each sub-sample separately. The results are very similar to the ones reported in Table 6 (panel B), where we apply a similar methodology.As an additional robustness check, we use a third proxy for growth opportunities, a dummy variable that takes the value of 1 if the firm is a high-growth firm and 0 otherwise, and re-estimate the models 6 and 7 of Table 8. The definition used in order to distinguish between high-growth and low-gro wth firms is the following: Firms above the 55th percentile in terms of the variable GROWTH are called high-growth firms. Firms below the 45th percentile in terms of the variable GROWTH are called low-growth firms.Finally, firms between the 45th and 55th percentile are excluded from the sample. The results (not reported) are qualitatively similar to the ones reported in Table 8. For example, there is evidence for the existence of an interaction effect between executive ownership and growth opportunities but not for the one between short-term debt and growth opportunities. Also, we re-estimate the models reported in Table 8 after substituting the total salary paid to executive directors for the total remuneration package paid to executive directors.We are doing so given that the total remuneration package that is paid to managers includes several other components. For instance, the components of compensation structure have been increased in number during the last decade and may inclu de annual performance bonus, fringe benefits, stock (e. g. preference shares), stock options, stock appreciation rights, phantom shares and other deferred compensation mechanisms like qualified retirement plans (see Lynch and Perry, 2003 for an analytical discussion). Once more, the results do not change substantially.Finally, in Table 9 we substitute the annual sales to total assets with the ratio of SG&A expenses to total sales. As already mentioned earlier in the paper, this ratio can be used as a direct proxy for agency costs. Our results, as presented in Table 9, indicate that executive ownership, ownership concentration and total debt help reduce discretionary spending and, therefore, the agency conflicts between managers and shareholders. Sign and Davidson (2003) do not find any evidence to support these results. Also, we find that agency costs and growth opportunities are positively related i. . the coefficient of the variable GROWTH is positive and statistically significant to the 5 per cent statistical level. 23 Finally, our results support the existence of an interaction effect between growth opportunities and executive ownership. However, once more, our analysis does not indicate the existence of an interaction effect between short-term debt and growth opportunities. [Insert Table 9 here] 5. Conclusion In this paper we have examined the effectiveness of the alternative corporate governance mechanisms and devices in mitigating managerial agency problems in the UK market.In particular, we have investigated the impact of capital structure, corporate ownership structure, board structure and managerial compensation structure on the costs arising from agency conflicts mainly between managers and shareholders. The interactions among them and growth opportunities in determining the magnitude of these conflicts have also been tested. Our results strongly suggest managerial ownership, ownership concentration, executive compensation, short-term debt and, to s ome extent, bank debt are important governance mechanisms for the UK companies.Moreover, â€Å"growth opportunities† is a significant determinant of the magnitude of agency costs. Our results suggest that highgrowth firms face more serious agency problems than low-growth firms, possibly because of information asymmetries between managers, shareholders and debtholders. Finally, there is strong evidence that some governance mechanisms are not homogeneous but vary with growth oppo

The Basics of Getting Started in Homeschooling

The Basics of Getting Started in Homeschooling When youre new to homeschooling, the logistics can seem overwhelming, but it doesnt have to be a stressful time. These homeschooling basics will help you have your homeschool up and running as stress-free as possible. 1. Make the Decision to Homeschool Making the decision to homeschool can be  difficult and is not one to be made lightly. As you are  deciding if homeschooling is right for you, consider factors such as: The time commitmentThe pros and cons of homeschooling based on your family’s needsYour spouse and child’s opinions about homeschooling There are many factors that go into deciding to homeschool and many are unique to your family’s specific needs. Talk to other homeschooling families in person or online. Consider attending a homeschool support group meeting or find out if the groups in your area offer  events for new homeschooling families. Some groups will pair families with an experienced mentor or host QA nights. 2. Understand  Homeschool Laws It is important to know and follow the homeschool laws and requirements of your state or region. Although homeschooling is legal in all 50  states, some  are more heavily regulated than others, particularly if your child is  a certain age (6 or 7 to 16 or 17  in most states) or has already been enrolled in public school. Make sure that you understand what is required of you to withdraw your child from school (if applicable) and  begin homeschooling. If your child has not been in school, make sure you know the age by which you must notify your state that you will be educating at home. 3.  Start  Strong Once you make the decision to homeschool, you’ll want to do all that you can to ensure that you start on a positive note.  If your student is transitioning from public school to homeschool, there are steps you can  take to smooth the transition. For example, you’ll want to allow time for everyone to make the adjustment. You don’t have to make every decision right away. You may find yourself in the position of wondering what to do if your child doesn’t want to homeschool. Sometimes that is simply part of the adjustment period. Other times, there are root causes that you will need to address. Be willing to learn from the mistakes of veteran homeschooling parents and to listen to your own instincts regarding your children. 4. Choose a Support Group Meeting together with other homeschoolers can be helpful, but finding a support group can sometimes be difficult. It often takes patience to find the right match for your family. Support groups can be a great source of encouragement. The leaders and members can often help with choosing curriculum, understanding whats required for record-keeping, understanding state homeschool laws, and providing opportunities and activities for your students. You can begin by searching for homeschool support groups by state or asking other homeschool families you may know. You may also find great support in online support groups. 5. Select  Curriculum Selecting your homeschool curriculum can be overwhelming. There is a dizzying array of options and it’s easy  to overspend and still not find the right curriculum for your student. You may not even need curriculum right away and can utilize free printables and your local library while you decide. Consider used curriculum or creating your own in order to save money on homeschool curriculum. 6. Learn the Basics  of Record Keeping It is very important to keep good records of your childs homeschool years. Your records can be as simple as a daily journal or as elaborate as a purchased computer program or notebook system. Your state may require that you write a homeschool progress report, keep a record of grades, or turn in a portfolio. Even if your state doesn’t require such reporting, many parents enjoy keeping portfolios, progress reports, or work samples as keepsakes of their children’s homeschooling years. 7. Learn the Basics of Scheduling Homeschoolers generally have a great deal of freedom and flexibility when it comes to  scheduling, but it sometimes takes a while to find  what works best for your family. Learning how to create a homeschool schedule doesnt have to be difficult when you break it down into manageable steps. It can be  helpful to ask other homeschooling families what a typical homeschool day looks like for them. A few tips to  consider: When your kids work best: Are they early birds or  night owls?Your spouse’s work scheduleOutside classes and commitments 8. Understand Homeschool Methods There are many methods  for homeschooling your children. Finding the right style for your family may take some trial and error. It’s  not uncommon to try a few different methods throughout your homeschooling years or to mix and match. You may find that some aspects of unschooling may work for your family or there may be some bits of the Charlotte Mason method or some unit study techniques you’d like to employ. The most important thing to remember is to be open to what works for your family rather than feeling that you have to make a lifetime commitment to a particular homeschooling method. 9. Attend a Homeschool Convention Homeschool conventions are much more than book sales. Most, particularly larger conventions, have vendor workshops and special speakers in addition to the vendor hall. The speakers can be a great source of inspiration and guidance. Homeschool conventions also provide a chance to talk to vendors who can answer your questions and help you determine which curriculum is right for your student. 10. Know What to Do If You Begin Homeschool  Mid-year Is it possible to begin homeschooling midyear? Yes! Just remember to check your state’s homeschool laws so that you know how to properly withdraw your children from school and begin homeschooling. Don’t feel that you have to jump into a homeschool curriculum right away. Utilize your library and online resources while you figure out the best homeschool curriculum choices for your student. Homeschooling is a big decision, but it doesnt have to be difficult or overwhelming to get started.

Creating Windows Service Applications Using Delphi

Creating Windows Service Applications Using Delphi Service applications take requests from client applications, process those requests, and return information to the client applications. They typically run in the background without much user input. Windows services, known also as NT services, offer long-running executable applications that run in their own Windows sessions. These services can be automatically started when the computer boots, can be paused and restarted, and do not show any user interface.   Service Applications Using Delphi Use Delphi to create service applications: Create a service, install and uninstall the service application, make the service do something, and debug the service application using the TService.LogMessage method. Develop a Windows service using Delphi and register it with Windows.Start and stop a Windows service using Delphi to call Win32 functions, for those cases when you must restart one or more services to avoid conflicts at the operating-system level.Retrieve all currently installed services to help both the end user and Delphi programs respond appropriately to the presence, absence or status of specific Windows services. Generate advanced status reporting for running Windows services. The  OpenSCManager()  and OpenService()  functions highlight Delphis flexibility with the Windows platform. More About Windows Services and Delphi Although Delphi is optimized more for typical user-fronted applications, the programming language remains capable of creating service applications. Newer versions of Windows (especially Windows 10) have tightened the rules that service applications have to play by, relative to Windows XP and Windows Vista. If you develop service applications using Delphi, review Microsofts current technical documentation to orient yourself to best practices for Windows 10 and Windows Server.

Capital markets Essay Example | Topics and Well Written Essays - 2000 words

Capital markets - Essay Example sically is a promise to pay back the face value of the bond on maturity together with making periodic interest fees known as coupon rate (Palmiter, 2009). Plowback-Earnings is another important source of new funds which corporations use on capital projects. Instead of paying out dividends to shareholders, a company may decide to plowback the profits made back into the corporation. Plowback is basically reinvesting profits back into the business. It is an attractive way of raising capital since it is usually subject to the control of management. There is no approval required from the government for its use, as happens when a corporation seeks to raise funds via selling of stocks, bonds and securities. In addition, bonds and stocks have costs related to them, for instance, interest that is paid on bonds whereas profit retention avoids such costs (Tirole, 2010). Private equity-This is a source that is popular with small firms or start-ups that cannot raise funds through the stock exchange or rather do not desire to subject themselves to other financing options available. Thus they prefer raising capital via private equity, a process that basically comprises of private investors offering capital to a corporation in exchange for a given stake in the firm. A private equity company is a consortium of investors that pool their capital together for purposes of investment, mostly in other companies (Scanlan 1997). Equity securities-commonly referred to as stock is the fourth source of capital for corporations. Equity is basically an ownership stake in a business or property. Stock being the smallest form of new capital is of great importance to a firm in beginning a company and its early operations. A stock will offer an investor several legal rights such as ownership, sharing in earnings, transferability as well as the power to vote. Stocks are acquired through payment of cash (Jenkins 2013). 2. A financial market basically entails a market where entities and people