Practices of Suboptimal Investments in Russian Companies Depending on Life-Cycle Stages
The focus of this paper is the reasons of suboptimal investment policy that consists of over- or underinvestment. We consider the definitions of risk-shifting and risk avoidance effects that lead to suboptimal investments. These problems are connected with the agency conflicts in the firm between different parties: shareholders, debt holders and managers. Since the preferences of claimholders vary from one stage of the life-cycle to another, the incentives for over- and underinvestment differ in the stages of the life-cycle. The originality and the focus of this paper are the reasons for the exposure of overinvestment and underinvestment at different life-cycle stages. The research was conducted on a sample of Russian nonfinancial companies from the period 2003-2012. This sample was divided into three life-cycle stages: growth, maturity and decline. The method of life-cycle stages identification was modified in order to use only available data and make the model more business oriented. Risk-shifting and risk avoidance, as the reasons to the problem of suboptimal investment were studied. For this purpose the estimations with one of the effects were identified. The life-cycle stages, at which the effects took place, were determined, and also the strength of risk-shifting and risk avoidance was identified with the help of the regression analysis. In addition there was considered a way to mitigate these effects. According to the results they might be eliminated by the adjustment of short-term debt level.
The paper deals with the influence of the growth opportunities on the company‟ investment policy. The analysis is based on the real options concept. It is shown that in the presence of valuable growth opportunities traditional methods of investment analysis can lead to the bias in the estimate of the investment project efficiency if the risks of the project are assumed to be equal to the risks of company's assets-in-place.
The tutorial discusses the practical computer analysis in the solution of problems in financial management topics . Included guidelines for the quantitative description of the planning system in financial management. An overview of key categories and provisions for asset management and capital. Revealed theoretical issues related to investment management . The material in this manual has a scientific and practical character and contains the information about the typical problems of financial management , which will be in demand by readers directly in research and professional activities. The manual is intended for students and undergraduates enrolled in the direction of "Economics" and "Management" , and may also be useful to managers and professionals , both financial and non-financial corporations.
Being one item by definition investment is actually not homogenous: generally, there are two major types – capital investment and investment in M&A deals. They are different from firm’s point of view and influence economic growth through different channels. In this paper, we examine the relationship between new capital investments and investments in acquisitions in Russia using data for more than one hundred companies in 2004-2014. The period is split into two sub-samples – period of rapid growth (before the global financial crisis of 2008) and post-crisis one (after 2009). Our results show that relationship between fixed investments and investments in acquisitions is opposite for two periods. In the first period, relationship between two types of investment was positive for non-state companies and insignificant for state ones that possibly means that companies did not face the choice of investment form. After the global financial crisis, when monetary conditions and access to external capital markets for Russia tightened considerably, the relationship between investment in new capital and investment in acquisitions became negative. It proves that companies faced a trade-off between two investment forms. Moreover, acquisitions became dependent on company’s profitability. Therefore, the trade-off can be more severe in developing economies since they are more dependent on external financing. These results can provide policy implications given the new understanding of financial constraint significance for investment.
The article examines the experience of China's investment policy aimed at creating favorable conditions to attract investment, particularly foreign direct investments, to the most important country's industries. In recent years, this policy (the establishment of free economic zones, trade liberalization, the establishment of an appropriate legislative framework, state support for investors) has brought noticeable positive results, but with the beginning of the global financial crisis allowed to avoid the most painful consequences. This experience taking into account all its particularities can be useful for our economy.
After the global financial crisis Russian macroeconomic dynamics changed dramatically: reduced access to external financing and the worsening economic outlook led to very weak investment dynamics. We test and confirm the hypothesis that one of the reasons is high debt burden of Russian companies - debt overhang. We propose a new indicator for debt overhang. Now the issue of financing investment in Russia is especially important: due to political reasons, the international capital markets are closed for most Russian companies. Special attention is given to the active participation of the government in the capital of companies. Companies associated with the state have formal and informal preferences, easier access to debt financing and may have soft budget constraints.
The level of corporate diversification is one of the most important decisions that management makes. The diversification strategy has its benefits and costs. According to the principles of corporate finance the efficiency of diversification strategy is always assessed by its impact on shareholder value. The article discusses the main value-creating and value-destroying drivers of diversified firms.
Smoking is a problem, bringing signifi cant social and economic costs to Russiansociety. However, ratifi cation of the World health organization Framework conventionon tobacco control makes it possible to improve Russian legislation accordingto the international standards. So, I describe some measures that should be taken bythe Russian authorities in the nearest future, and I examine their effi ciency. By studyingthe international evidence I analyze the impact of the smoke-free areas, advertisementand sponsorship bans, tax increases, etc. on the prevalence of smoking, cigaretteconsumption and some other indicators. I also investigate the obstacles confrontingthe Russian authorities when they introduce new policy measures and the public attitudetowards these measures. I conclude that there is a number of easy-to-implementanti-smoking activities that need no fi nancial resources but only a political will.
One of the most important indicators of company's success is the increase of its value. The article investigates traditional methods of company's value assessment and the evidence that the application of these methods is incorrect in the new stage of economy. So it is necessary to create a new method of valuation based on the new main sources of company's success that is its intellectual capital.