When introducing the pecking order theory, Myers (1984) already acknowledged that the pecking order theory would not be able to explain all debt and equity choices of firms. However, he noted that, in the aggregate, the pecking order theory is able to explain the observed reliance of companies on internal financing and leverage. The pecking order theory of capital structure is derived from the point of informational asymmetry between firms’ managers and investors (Myers & Maljuf, 1984). It is assumed that since managers are insiders in a firm, they have access to better information than investors. Furthermore, Majluf and Myers (1984) assume that managers aim to maximize the value of shares of existing shareholders, and that investors know
There are basically two arguments why fair value accounting can donate to pro-cyclicality. The first argument is that fair value accounting and asset write-ups allow banks to raise their leverage during economic expansions, which in turn makes the financial system more vulnerable and financial crises more severe. The second argument is that fair value accounting can cause corruption in financial markets. The idea is that ―banks may or have to sell assets at a price lower than the major value and that the price from these forced sales becomes applicable to other institutions that are required by fair value to mark their assets to market. Fundamental value differs from fair value in the following
Numerous economists question the classical form of monetarism and instead give an alternative to what they presume would serve countries well. Keynesianism Keynesianism theory of economy, on the other hand, emphasizes that fiscal policy can play a significant role in stabilizing the economy (Kindleberger, 2013:14). Unlike in monetarism, Keynesianism advocates for higher government spending; especially during a recession, as this can help recover the economy quicker. Keynesians argue that it is ill advised for governments to wait for markets to clear, as classical economic theory suggests. Principles of Keynesianism and its Links to the
Profitability is great but it is not enough to become a successful company as a well-managed working capital is equally as important. As a way to avoid bankruptcy in poor situations, companies can use credits or sell off short-term assets to get capital for payments (Pass & Pike, 2007). In order to ease the managing of working capital, senior management use cash a conversion cycle as measurement to help them to keep an eye on the level of working capital they have in different periods of time. They can use different measures but cash conversion cycle is the more common one. Factors impact on Working Capital Management.
Many know The Great Depression hit America at this time, leaving more Americans without money, however the supply had not changed, there was still the same technology and resources and it was clear to Keynesian Economic that a self adjusting economy would not cut it anymore. This theory is the idea that demand determines the amount goods supplied. The Keynesian Economists believed aggregate demand is influenced by both the public and private sectors; meaning they believed the government had a role in the influence of economic choices. The belief that the velocity was unstable and that the market would not return to potential output on its own was a large argument they had. As aggregate demand affects the supply (production, employment and inflation) they saw it as the government's role to build it back up using monetary and fiscal policies.
The way to go will be to switch from a debt-based economy to a share-based economy. In fact, because contracting debts in bitcoins would be very expensive business can still obtain the capital they need by issuing shares of their company. This could be an interesting alternative as it will offer many investment opportunities and the wealth generated will be distributed more evenly among people. However, just for clarity, I have to say that part of the costs of borrowing capital will be reduced under bitcoins because the fees would be extremely low and there won't be intermediaries between transactions (banks rip people off, both borrowers and lenders). This would buffer some of the negative sides of deflation.
This mean that even though the normative analysis assume that the bond-warrant is more advantageous as compared to convertible bond but this theory is unable to be practice in the real world if the bond-warrant is not demanded by investor. Which mean, even though the firm has a good product but if there is no one to buy it, then what is the point of selling it. For a firm to get a financing, it has to follow the preference of the investor. If not, then the firm unable to pool high amount of money to expand its business. However, it cannot be denied that normative analysis mention of how much does the bond-warrant gives benefit as compared to the convertible bond and this is true but there is one thing that the author and the normative analysis didn’t mention in this paper, which is about the disadvantages of both bond-warrant and convertible.
Quantitative Easing Controlling growth is one of the topmost challenges for Governments and central banks. They like to see just enough growth in an economy - not too much that could lead to inflation getting out of control, but not so little that there is stagnation. One way in which they can control growth is by raising or lowering interest rates. Lower interest rates encourage people or companies to spend money, rather than save. But when interest rates are at almost zero, central banks need to adopt different methods - such as pumping money directly into the financial system.
As stated in Dr. Aurangzeb (2012), the performance of stock markets is affected by the interest rates and it has a negative and significant impact. Whenever the interest rates increases, the investor will tend to invest less in stock markets and move their investment to other sector which is less costly and more profitable. The other reason could be the investor finds that it is more profitable to save their money in the bank instead investing in the risky and fluctuated stock
There has been a huge criticism associated with this sort of inflation because an increase in the cost of goods, raw materials and services does not lead to an inflationary scenario. The statement presented against is that if money supply is constant then with a rise in the prices of raw materials and goods, the money available for purchasing other goods and services will reduce. This creates an offsetting case for those goods whose prices had increased. 3. Monetary Expansion Monetary policy is the process which the central bank uses for controlling the economy by affecting the interest rate.