Understanding Corporate Finance: Experience of Emerging Economies and Case of a High-Income Small Developing Country.

Author(s)

Haven Allahar ,

Download Full PDF Pages: 34-43 | Views: 361 | Downloads: 101 | DOI: 10.5281/zenodo.3460285

Volume 4 - July 2015 (07)

Abstract

The purpose of this paper is to provide an overview of the theories, concepts and issues involved in the area of corporate finance and the implications for emerging economies. A secondary research approach was adopted based on a review of published texts, journals, and technical reports. The results of the study demonstrate that based on the indicators of capital market development, the high-income developing country of Trinidad and Tobago used as a case study, lags behind in critical areas of development of its capital market and, along with related developing countries, can benefit from the fundamental principles involved in the practice of corporate finance. The practical implications of the study are the potential use by students in tertiary level institutions engaged in MBA or financial management studies, participants pursuing professional qualifications in accounting and finance, employees in financial institutions, and general stakeholders seeking to invest funds. The value of this paper is that it explores and presents data on an area of study which is considered esoteric and largely ignored in the formal literature on small developing states, particularly the island-states of the Caribbean. Its value further lies in its contribution to the understanding of the field of corporate finance and related issues and identification of implications for developing economies. The research is limited to the extent that only secondary data sources were explored and insights from practitioners through interviews were not obtained thus pointing to scope for future research.

Keywords

Corporate finance, developing countries, emerging economies, financial investments.

References

  1. STANDS 4 LLC. (2015). Definition of Corporate Finance. [Online]. Available: http://www.definitions.net/definition/corporate finance
  2. S. Beaney, (2011). What is corporate finance [Online]. ICAEW, Corporate Finance Faculty. Available: http://www.icaew.com/en/technical/corporatefinance/corporate-finance-faculty/what-iscorporate-finance-122299
  3. T. Nguyen and A. Schüßler, “How to make better decisions? Lessons learned from behavioral corporate finance”, Inter. Business Research, vol. 6, no.1, pp. 187-195, 2013. http://dx.doi.org/10.5539/ibr.v61p187
  4. M.B.Tudose, “Corporate Finance Theories, Challenges and Trajectories”, Management & Marketing, vol. 7, no. 2, pp. 277-294, 2012.
  5. M.C. Ehrhardt and E.F. Brigham, Corporate Finance a Focused Approach. Mason, Ohio: SouthWestern Cengage Learning, 2009.
  6. A. Frielinghaus, B. Mostert, and C. Firer, “Capital structure and the firm‟s life stage”, South African J. of Bus. Management, vol. 36, no. 4, pp. 9-17, 2005.
  7. C. Amo-Yartey and J. Abor, “Corporate financial policies in markets: The role of financial market development”, Amer. J. of Business, vol. 28, no. 2, pp. 123-146, 2013. doi: 10. 1108/AJB-052013- 0035
  8. J.W. Creswell, Research Design: Qualitative, Quantitative, and Mixed Methods Approaches. Thousand Oaks, California: SAGE Publications Inc., 2009.
  9. A.K. Sharma, A.K. “Financial leverage and firms' value a study of capital structure of selected manufacturing sector firms in India”. The Business Review, vol. 6, no. 2, pp. 70-76, December 2006.
  10. M. Amidu, “Determinants of capital structure of banks in Ghana: an empirical approach”, Baltic J. of Management, vol. 2, no. 1, pp. 67-77, 2007. doi:10.1108/17465260710720255
  11. F. Bancel and U.R. Mittoo, “Cross-country determinants of capital structure choice: A survey of European firms”, Financial Manage., vol.33, no. 4, pp. 103-132, Winter 2004.
  12. J.T. Eckhardt, S. Shane and F. Delmar. “Multistage selection and the financing of new ventures, Management Sci., vol. 52, Iss. 2, pp. 220-232, February 2006.
  13. H.E. Van Auken, “Financing small technologybased companies: The relationship between familiarity with capital and ability to price and negotiate investment”, J. of Small Bus. Management, 39(3), 240-259, July 2001.
  14. K. McNally, “Corporate venture capital: The financing of technology businesses”, Inter. J. of Entrepreneurial Behaviour & Research, vol. 1, no. 3, pp. 9-38, 1995.
  15. G.A. Pogue and K. Lall, “Corporate finance: An overview, Sloan Management Review, vol. 15, no. 3, pp. 19-39, Spring 1974.
  16. Anonymous, “Strategy: Financial evolution brings solutions”, Fund Strategy, vol. 12, August 17, 2009.
  17. R. Clarke and G. McQueen, Forecasting financial statements pro forma analysis. [Online]. August 2001. Available: http://www.docstoc.com/docs/5287877
  18. B.Coyle, Capital Structuring. Chicago: Fitzroy Dearborn. 2000. Available: books.google.com/books?isbn=1579582540
  19. R. Barrett and J. Hope, “Re-forecasting practice in the UK”, Measuring Business Excellence, vol. 10, no. 2,pp. 28-40, 2006. doi:10.1108/13683040610668684
  20. L. Cheatham and C. Cheatham, “Utilizing financial statements as cash flow planning and control tools”. Managerial Finance, vol. 19, no. 8, pp. 35-49, 1993.
  21. L.J. Gitman, Basic Managerial Finance. New York: Harper & Row, 1987.
  22. S. Mishra, A.J. Prakash, G.V. Karels and M. Peterson, “Bank mergers and components of risk: An evaluation”, J. of Economics and Finance, vol. 2, no. 1, pp. 85-97, Spring 2005.
  23. M.I. Schneller, “Regression analysis for multiplicative phenomena and its implication for the measurement of investment risk”, Management Science, vol. 22, no. 4,pp. 422-426, December 1975.
  24. N.A. Scordis, J. Barrese, and P. Wang, “The impact of cash flow volatility on systematic risk”, J. of Insurance Issues, vol. 31, no. 1, pp. 43–71, 2008.
  25. M. Lubatkin and S. Chatterjee, “Extending modern portfolio theory into the domain of corporate diversification: Does it apply”. Academy of Management Journal, vol. 3, no. 1, pp. 109-136, February 1994.
  26. T. Sueyoshi, “Financial ratio analysis of the electric power industry”, Asia - Pacific J. of Operational Research, vol. 22, no. 3, pp. 349-377, September 2005.
  27. J. Osteryoung, R.L. Constandt and D. Nast, “Financial ratios in large public and small private firms”, J. of Small Bus. Management, vol. 30, no. 3, pp. 35-45, July 19192.
  28. E.L. Golding and C.A. Wambeke, “Enough is enough: A timely look at financial-soundness measures”, Secondary Mortgage Markets, vol. 15, no. 1/2, pp. 28-37, July 1998.
  29. R. Bull, “Financial ratios”. Financial Management, pp. 34-35, April 2005.
  30. T.A. Lee, Company Financial Reporting (2nd ed.). Berkshire, England: Van Nostrand Reinhold, 1982.
  31. G.K. Meek and S.J. Gray, “The value added statement: An innovation for U.S. companies”, Accounting Horizons, vol. 2, no. 2, pp. 73-82, June 1988.
  32. A. Riahi-Belkaoui and M.A. Fekrat, “The magic in value added: Merits of derived accounting indicator numbers”, Managerial Finance, vol. 2, no. 9, pp. 3- 15, 1994.
    R.D. Picur, “The effects of accounting knowledge on the omission of value added information in wealth measurement and distribution decisions”, Review of Acct. & Finance, vol. 6, no.1, pp.15-23, 2007. doi: 10.1108/14757700710725430
  33. G. Arangies, C. Mlambo, W.D. Hamman and B.W. Steyn-Bruwer, “The value-added statement: An appeal for standardisation”, Management Dynamics, vol. 17, no. 1, pp. 31-44, 2008.
  34. R.D. Kugel, “The Right Stuff”, Business Finance, vol. 14, no. 9, pp. 38-40, September 2009.
  35. C. DiFabio, “Extreme makeover for financial statements”, Financial Executive, vol. 25, no. 3, pp. 44-47, April 2009.
  36. G. Bokpin, “Financial market development and corporate financing: Evidence from emerging economies”, J. of Econ. Studies, vol. 37, no. 1, pp. 96-116, 2010. doi: 10.1108/01443581011012270
  37. A.E. Ezeoha and F. Okafor, “Local corporate ownership and capital structure decisions in Nigeria: A developing country perspective”, Corporate Governance, vol.10, no. 3, pp. 249-260, 2010. doi: 10. 1108/14720701011051893
  38. World Bank Group,“The Global Economy in Transition” in “Global Economic Prospects”, Chapter 2: Latin America and the Caribbean, International Bank for Reconstruction and Development, Washington, DC, U.S, June 2015. Available: http://www.worldbank.org
  39. Central Bank of Trinidad and Tobago (CBTT: EB), “Economic Bulletin” February 2015, Port of Spain, Trinidad. Available: http://www.central-bank.org.tt
  40. Central Bank of Trinidad and Tobago (CBTT: AES), “Annual Economic Survey 2014”, 2015, Port of Spain, Trinidad. Available: http://www.centralbank.org.tt
  41. Central Bank of Trinidad and Tobago (CBTT), “Summary Economic Indicators”, 2014, Port of Spain, Trinidad. Available: http://www.centralbank.org.tt
  42. A. Damodaran, What is Corporate Finance, [Online]. 2015. Available: http://pages.stern.nyu.edu/~adamodar/New_Home_ Page/background/cfin.htm
  43. D.E. Adler, “A behavioral theory of corporat finance”, strategy+business, Issue 34, Spring 2004.
  44. R. Charan, “A decisive direction”, Intheblack, vol. 79, no. 3, p. 49, April 2009.
  45. B. Neuhausen, “Achieving greater transparency”, Directorship, vol. 35, no. 3, pp. 68-69, June/July 2009.

Cite this Article: