Emerging Markets FDI China Dissertation

Competitive Dynamics in Emerging Markets: Case of China’s FDI Inflows

Emerging Markets: Foreign direct investment (FDI) constitutes one of the main modes of market entry which has been used by a growing number of multinational enterprises (MNEs) to achieve growth. Through FDI firms engage in a special form of capital flows which involves the relocation of capitals, as well as intangible assets such as management skills and production know-how.

As underscored in extant literature on international trade, the benefits of FDI are experienced by both the foreign firm and host country. Put differently, FDI results into a mutually beneficial relationship in which case the foreign firm benefits from a larger market for its products and access to important inputs while the host nation benefits from increased trade and a multiplier effect. While licensing and export provide less risky paths to foreign market entry, research based on the market failure theory attributes the growing preference for FDI to the need by firms to make full gains from their capital.

Emerging Markets FDI Dissertation
Emerging Markets FDI Dissertation

Traditionally, FDI flows have been from developed countries to other developed countries. Countries such as the United States, United Kingdom and Japan have in particular been major players in inward and outward FDI. In year 2000, US received 22% of the world’s FDI while countries in the EU cumulatively received an estimated 49% of the FDI. This trend marked by the flow of FDI from developed to developed countries is however changing. The last decade has in particular been marked by a trend in which FDI flows are from developed countries to emerging countries such as the BRIC (Brazil, Russia, India and China).

In terms of competitiveness in FDI and international trade in general, emerging countries have for long been considered as uncompetitive. Developed nations have traditionally crowded out developing countries in international trade due to several barriers. As an example, it is until recently that developing countries have become more open to international trade and their exports have mainly comprised of primary products. They also face a host of barriers revolving around national policy, credit constraints and technological limitations among others.

Despite these barriers emerging countries have in the last decade emerged as equally competitive players at the international front. Academics have even pointed out that emerging markets are in the current times more competitive than developed markets. The researchers justify this assertion by pointing out that an analysis of corporate profitability in both economies shows significantly different results. In the developing world, the dynamics of competition are such that both the short-term and long-term persistence in profitability of organisations is lower than that of the developed world. To a large extent, this is a clear indicator that competition in the developing world is more intense. While focusing on inward FDI, the present research determines why China has become one of the most competitive emerging markets in this form of international trade.

Dissertation Objectives

  • To determine the level of competitiveness in attracting FDI among emerging markets
  • To investigate the specific factors influencing China’s competitiveness in attracting FDI
  • To examine the extent to which factors influencing China’s competitiveness in attracting FDI can be maintained in the long term
  • To highlight the various ways through which competitiveness of China’s FDI can be measured

Dissertation Contents

1 – Introduction
Study background
Research problem
Research question
Research objectives
Significance of the study
Overview of research methodology
Structure of the study

2 – Literature Review
Factors influencing competitiveness in inward FDI among emerging economies
Theoretical perspectives on determinants of FDI
Specific factors in emerging countries that increase a country’s competitiveness in attracting FDI inflows
Challenges in effectively competing for FDI in emerging markets

3 – Research Methodology
Data source and Research design
Research approach
Research strategy
Data collection techniques and process
Data analysis techniques
Quality of the study findings
Ethical considerations and limitations

4 – Results, Findings and Discussions
Factors influencing China’s competitiveness in attracting FDI
Sustainability of China’s FDI attractiveness
Discussion of study findings

5 – Conclusions and Recommendations
Competitiveness of emerging markets in attracting FDI
Factors influencing China’s competitiveness in attracting FDI
The sustainability of factors influencing China’s competitiveness in attracting FDI
Study recommendations

References

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Capital Structure Financial Gearing Project

Negative Effects of Financial Gearing

Capital structure is one of the paramount elements which a firm should consider when undertaking its short term and long term projects. Well, the balanced capital structure enables the company to achieve strike off the balance of growth‚ Continuous improvement and growth‚ risk mitigation thus ensuring production goes on uninterrupted. For this matter the paper analysis the factors to consider when setting the capital structure‚ advantages of proper debt-equity management and lastly the risks of having improperly balanced capital structure when financing various operations. Finally‚ evaluation of best financial management techniques which can help to ensure organizational goals are achieved without compromising its operations.

Enterprises should maintain the proper balance of the capital structure which entails attaining the reasonable level of equity-debt level. Furthermore‚ it is recommendable that there should be the efficient matching of liability to asset level, this implies that only long-term projects should be. Financed by the long-term liabilities and vice versa for short-term projects which should be funded by use of the short-term sources of the funds. Lack of this aspect will compromise the value of the firm which can lead to financial distress in its advance levels‚ as debt capital is very much expensive source of fund (Ding, Wu, & Zhong, 2016‚p 328).

For instance use the short-term loans to build rentals with the anticipation they will raise some money which can be used to service the loan repayment can ditch the firm in financial problems especially when the building fails to get occupants. It should be noted that returns on some projects are probabilistic whereby there is no consistency of their returns as market forces of demand and supply are unpredictable. Thus market assessment and evaluation should be carried out to prevent such advance results which can jeopardize the firm’s operations.

Factor to Consider When Setting Appropriate Capital Structure

In recent past, there has been the development of various theories to expound on factors which should be considered when determining proper level debt-equity ratio to be maintained by the company (Öztekin, 2015 ‚p 302). Most of the theories suggest that before choosing the capital structure to use firms should consider various factors which include the following;-

Cost-benefit‚ the companies should come up with the capital structure which yields the highest return with the least risk involved. For instance, if the shareholders capital is capable of financing the operations of the firm or they have sponsors. Dong, Yanmin, Kaul, Charles ‚Yui, and Tsang, (2016‚p 200) noted that having these organization helps in achieving proper control and management of capital structure   The management should opt to maintain the high level of equity to debt ratio in its capital component. Furthermore‚ depending on the risk propensity and attitude of the management one can opt to go for debt capital due to tax shield benefit.

Financial flexibility‚ this involves ease at which the enterprise can interchange debt to equity without possible cases of financial distress. For instance, promptly the airline industry is capable of making significant returns‚ while at bad times it can consider raising working capital through debt capital.

Management style may be classified as either aggressive or conservative. Aggressive managers have the appetite for risk‚ hence taking the risk for them is not a big deal (Zawadzka, Szafraniec-Siluta, & Ardan, 2015‚p 358). For conservative managers, they are risk averse, so they will tend to avoid debts.

The growth phase of the firm -The companies in growth stage tend to finance their operations through debt capital while well-established firms prefer equity capital more than debt capital.

Market condition‚ if the company is raising funds to finance new plant having high market volatility. In such situation, there are high chances of the company to land in financial distress whereby the returns accrued from the plant are not sufficient to service the loans.

Illustration

Assuming that a company has borrowed £5,000,000 to be repaid for eight years at an interest rate of 12% pa to invest in both shares and real estate. The repayment will be systematically be amortized as follows:-

Year

Opening Balance Annual repayment Interest Principal

Closing balance

1 5,000,000 1,006,514 600,000 406,514 4,593,486
2 4,593,486 1,006,514 551,218 455,296 4,138,190
3 4,138,190 1,006,514 496,582 509,931 3,628,259
4 3,628,259 1,006,514 435,391 5,711,223 3,057,136
5 3,057,136 1,006,514 366,856 639,658 2,417,478
6 2,417,478 1,006,514 290,097 716,417 1,701,061
7 1,701,061 1,006,514 204,127 802,387 898,674
8 898,674 1,006,514 107,841 898,673

Amount to be repaid annually is 5,000,000=PMT (1-1/ (1+r)/r

£5,000,000=PMT (1-1/ (1+0.12)8)/0.12=£1006514.

Assuming after the company bought shares the value of returns on stocks deteriorated and stabilized at £50,000 at the interest rate of 10%. The present value can be computed by use of present annuity formula as follows

Amount=50,000 (1-1 / (1+0.10)8)/0.10=266746

From above illustration the due to unforeseen market condition during loan acquisition. The firm will be unable to meet the debt obligation as even cumulative returns for eight years cannot pay for the loan in the first year. As there is the deficit of 1,006,514-266,746=£749,768.

Advantages of Above Arrangement

Robust accessibility of capital‚ efficient utilization of the debt capital can help the firm achieve the significant level of growth especially when the management have ventured in the viable industry. For instance ‚ by venturing in real estate the company will be capable of recouping the money required to service the loan in a very short. After which it can invest back the capital accumulated. The net effect of this will be multiplier effect‚ which will help the firm achieve its goal for sustainable development.

Best for buyout and acquisition for strategic growth‚ due to the risky nature of the debt capital it is only effective when the firm has short term strategic needs which are geared towards achieving a particular short viable objective. For instance buying of shares in the profitable company.

Tax shield benefit- debt capital is tax deductible thus a high level of returns to shareholders.

Disadvantage of Above Arrangement

Costly‚ for instance in case the enterprise has secured the loan to invest the in the financially geared products such as high-yield bonds and leveraged loans. For this matter managers must monitor the interest effectively that it does not suppose the intended rate of return on investment (Homburg, 2014‚ p 414). For investors to be convinced to take such investment risk, they will need compensation regarding premium of which in case of the unfavorable market condition the firm may be unable to raise.

It is the risky source of finance‚ even though financial gearing is one of the effective methods of financing operations of the firm. Extreme levels increase the risk level of the company to land at the lead to financial distress which at the advanced level can lead the Company to be put into receivership. For this reason, managers must ensure proper maintenance of liabilities and assets trend off is maintained to prevent adverse results which can jeopardize the firm’s operations. Hence, leading to financial failure which signifies the failure of the enterprise.

The sophisticated analysis required before taking loans. Most financial institutions need proper business plan from borrowing individuals and companies. In such situation, the borrowing entity may be compelled to hire financial analyst consultant to do some market feasibility and come up with the business plan which is very expensive, and it does not guarantee the proposal will be accepted by the prospected lending institution.

Financial Gearing and Capital Structure
Financial Gearing and Capital Structure

Conclusion

Going by the above discussion, it is clear that although using debt capital to finance operations has advantages. Such as Powerful accessibility of capital due to tax shield benefit and is best for buyout and acquisition strategic growth. It has inherent risks and disadvantages which can lead to financial distress hence bankruptcy. Thus‚ management must ensure proper trend off of risk and returns of borrowed loans and anticipated projects to be financed by such debt.

References

Ding, X. (Wu, M., & Zhong, L. 2016. ‘The Effect of Access to Public Debt Market on Chinese Firms Leverage’. Chinese Economy, no 49(5), pp 327-342.

Dong, C., Yanmin, G., Kaul, M., Charles Ka Yui, L., & Tsang, D. 2016. ‘The Role of Sponsors and External Management on the Capital Structure of Asian-Pacific REITs’: The Case of Australia, Japan, and Singapore. International Real Estate Review, no 19(2), pp 197-221.

Homburg, S. 2014. ‘Overaccumulation, Public Debt and the Importance of Land. German Economic Review’, no 15(4), pp.411-435.

Öztekin, Ö. (2015). ‘Capital Structure Decisions around the World: Which Factors Are Reliably Important?’. Journal of Financial & Quantitative Analysis, no 50(3), pp 301-323.

Zawadzka, D, Szafraniec-Siluta, E, & Ardan, R 2015, ‘Factors influencing the use of the debt capital on firm, Research Papers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu, no. 412, pp. 356-366.

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Interest Rate Investment Decision Dissertation

An Analysis on the Changes in Interest Rate and Its Impact on the Investment Decision: An Assessment of Barclays

Interest rate fluctuation and investment decision are two parallel things which investors take into consideration seriously. Due to the risk averseness of the investors and the opportunity of investments, degree of investment in different industries and sectors are different. While making investment decisions, investors consider the risk adjusted return foremost.

At the same time, a good consideration about the inflation rate and the tax rate is made since investors are well aware about the real income generated from the investment. In determining the interest rate, the treasury department plays the crucial role by analysing the interest rate being offered by other competitors and the probable effects of increasing or reducing the interest rate.

Barclays Bank has been facing the issue of lower investment due to the lower interest rate being offered and the returns to the shareholders in the form of dividends have seen significant reduction. There is a huge lost interest income due to the failure in attracting the depositors by offering higher rate. The treasury department is liable for managing the assets and liabilities in a way which secures the net worth not to be reduced. Treasury department within the Barclays Bank uses the sensitivity analysis in order to determine whether the interest rate is to be reduced or increased considering the goals and objectives of the firm.

Dissertation Objectives

  • To have a clear understanding about the interest rate changing factors
  • To understand the exposure of investors toward the interest rate fluctuations
  • To know the relationship between the interest rate and degree of investment
  • To understand the way Barclays Bank, determine the interest rates on their deposits and the loans and advances
Interest Rate Dissertation
Interest Rate Dissertation

Dissertation Contents

1: Introduction
Background of the research
Significance of the research
Problem solving and rationale of the research
Aims of the research
Objectives of the research
Research Questions
Structure of the research

2: Literature Review
A brief analysis on Barclays
Interest rate and its viewpoint from different perspectives
Factors that affect the changes in the interest rate
Changes in the interest rate and investment decision
Concepts regarding the research

3: Research Methodology
Research Philosophy
Research Paradigm
Research Reasoning
Research Approach
Collection of data and analysis of the data
Data analysis plan
Limitations of the research

4: Data Analysis
Base interest rate in the UK
Interest rate and inflation
Interest rate offered by different banks in the UK
Interest rate offered by Barclays in the UK
Interest rate movement and effect on net worth
Interest rate and shareholders’ actions
Treasury department and interest rate fixation

5: Discussion and Recommendations
Secondary research and literature review
Aims and objectives achievement
Recommendations
Future studies
Conclusion

References

Appendices

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Finance Dissertation Momentum Trading Strategy

Utilizing Momentum Trading Strategy on the UK Stock Market: Challenging Efficient Market Hypothesis

A number of studies have illustrated that stock returns may be predictable through implementing a momentum trading strategy, which contradicts the whole concept of the Efficient Market Hypothesis. This paper will discuss the Efficient Market Hypothesis and focus on its challenges in the face of behavioral finance. In addition, empirical research is conducted to test whether a momentum strategy can be implemented to successfully beat the market.

This dissertation draws on the framework developed by Jegadeesh & Titman (1993), while also taking ideas from other relevant scholars in the field, and analyses the monthly returns generated from the momentum strategy used, examining whether the returns in each constructed portfolio is greater than the return of the UK stock market (FTSE All-Share market index) for the period 2016, based around Brexit, an event which had an influence on the stock market as a whole, and construct another set of portfolios one-year prior to the event, to act as a control for comparability and to test validity of the momentum strategy being used to generate excess returns.

From the empirical data, it is seen that in the Brexit portfolios, every portfolio beat the market, however for the pre-Brexit portfolio, a few portfolios under performed the market, with the majority beating the market. Although the two time periods tested had dissimilar results, this dissertation can still confirm that the use of the momentum strategy can be used to predict future returns, and manage to earn abnormal returns.

This dissertation is inspired by the desire to gain a greater understanding of the financial markets, through implementing momentum trading strategies and examining anomalies to exploit any market inefficiencies. The research is motivated by a strong personal interest in the general topic areas and perceived gaps in existing literature. Moreover, financial market efficiency is the central importance to practitioners, investors, corporations and regulators, with financial theory being based around the belief that financial agents and markets are rational.

Furthermore, investors depend greatly on strategies which observe stock market behaviour, a key focus of this research. Also, with the continuous success of individuals such as George Soros and Warren Buffett, they represent the most immutable contradiction of market efficiency theories, that returns are unpredictable.

Momentum Trading Strategy Dissertation
Momentum Trading Strategy Dissertation

 

Momentum Trading Strategy Dissertation

Dissertation Contents

1: Introduction
Background to the study
Rationale
Research objectives
Importance of the study
Structure of the dissertation

2: Literature Review
An introduction to the Efficient Market Hypothesis (EMH)
Testing the efficient market hypothesis
Testing the weak-form efficiency
The Filter approach
The Dow Theory
Testing the semi-strong form efficiency
Event Studies
Stock Splits
Testing the strong-form efficiency
Anomalies
The calendar effect
The January effect
Behavioural Biases
Under-reactions, over-reactions and contrarian strategy
Momentum trading

3: Methodology
Data
Time period to test
The United Kingdom’s withdrawal from the European Union (Brexit)
One year prior to United Kingdom’s withdrawal from the European Union (pre-Brexit)
Formation Period and Holding Period returns
The Zero-Cost Trading Strategy
Validity test
Strategies characteristics
Hypothesis Test
Null Hypothesis (H0)
Alternative Hypothesis (H1)

4: Results and Analysis
Findings
Results for 3-months formation period
Results for 6-months formation period
Results for 9-months formation period
Results for 12-months formation period
Testing the validity of the research results
The January Effect
Effect of the EU Referendum on the test results
Summary of research results

5: Conclusion
Summary
Limitations of the study and suggestions for further research

Bibliography

Appendix

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Corporate Decision Making Capital Structure Financial Markets

Capital Structure and Corporate Decision Making: The Role of Compensation Plans on Managerial Decisions in Relation to Stock Performance in the Financial Markets

This dissertation attempts to answer the research question as to whether compensation plans provide better incentives for managers to take risks and increase stock performance in financial markets by corporations. Objectives aimed at examining whether compensation plans influenced managerial decisions and overall future stock performance in corporations. Another objective assessed effectiveness of compensation plans towards managerial risky decisions and performance. The author’s central argument was that compensation arrangements and efficient market information functionality motivated managerial decisions that increased future stock performance in corporations. The research methods adopted comprised of qualitative research methods that linked past evidence, theories and research works by other scholars to reaffirm or refute previous theories.

The methodology maintained an empiricist paradigm and research that made sense through objectivity realised from collected data. The models sought explanations and predictions with an aim of confirming, or substantiating relationships, as well as assembling generalisations on theoretical frameworks. Qualitatively, trends, gaps and opportunities were critically examined using desktop appraisal of secondary literature, documents, journals, books and reports. Content analysis method detailed systematic assessment of substances in specific materials aimed at identifying patterns, themes, or biases.

Capital Structure Financial Markets
Capital Structure Financial Markets

The review finds consistent literature to demonstrate that indeed compensation arrangements contribute to performance by managers. Organizations that link compensation plans with individuals could attract egoistic kind of CEO. Extrinsic incentives, particularly money, correlated with the largest productivity in terms of stock performances. Skills-based compensation plan now forms the new trend when identifying potential CEOs. Additionally, when designing compensation arrangements, one should balance with conflicting objectives by the shareholders, executives and corporations. What worked for firm A cannot be assumed to work for firm B because each corporation is distinct in size, philosophy, values and objectives.

Dissertation Objectives

  1. To examine whether compensation plans influence managerial decisions and overall stock performance in corporations
  2. To assess effectiveness of compensation plans towards managerial risky decisions and performance

Dissertation Contents

1 – Introduction
Research Question
Objectives
Rationale
Statement of the Problem

2 – Literature Review
Does Compensation Plan and Risky Decision Taking Translate to Better Performance?
The Role of Financial Markets in Managerial Decision Making
Forms of Compensation Plans
Effectiveness of Compensation Plans, Risky Managerial Decisions and Performance
Theoretical Perspectives

3 – Research Methodology
Qualitative Methods
Content Analysis
Limitations

4 – Research Findings
The Hard Facts
Why Compensation arrangements and Performance Metrics?
Compensation Arrangements
Short and Long-term Bonus Measures
Performance Units/Shares
Options
Human Resource Methods
The Bogey Plan
Relative Performance Evaluation (RPE)
Informational Function of Managerial Decision Making by Financial Markets
The Correlation between Compensation Plans, Risky Decision Making and Performance
Reasons for compensation plans
Reasons against compensation plans
Compensation arrangements and its Effectiveness towards Performance

5 – Analysis and Discussion

6 – Conclusions

Bibliography

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