Study of how owners and managers of publicly-traded companies make decisions that affect the values of those companies.
Examines effects of manager’s and investor’s psychological biases on firms corporate finance decisions.
Main psychological traps met are: confirmation bias, hindsight bias, herding behavior conservatism, the role of affects, wishful thinking, opaque framing, representativeness bias and overconfidence.
“Real-world” view- Managers and investors may be irrational (Psychological Biases) (“homo sapiens” view).
Behavioural Corporate Finance: considers managerial irrationality/biases. Focus on corporate finance decisions (investment appraisal, capital structure/dividend policy.
How the personal traits of managers affect the decisions made in the firm, especially financial decisions. We will see that the psychological qualities of individuals holding management positions have a decisive effect on.
For instance, their financing and capital budgeting decisions or their dividend policy. It will also become clear that the psychological profile of each manager will provide an explanation for the financial decisions made beyond the scope of the company and its business sector.
Assumptions of Behavioural Corporate Finance
Assumes irrational entrepreneurs or managers
Postulates irrational investors and limited arbitrage.
The Rational Managers with Irrational Investors Approach
This approach assumes that securities market arbitrage is imperfect, and thus that prices can be too high or too low. Rational managers are assumed to perceive mispricings, and to make decisions that may encourage respond to mispricing.
Rational manager objectives in irrational market:
1. Fundamental value - Maximizing fundamental value has the usual ingredients.
2. Catering - Catering refers to decisions that aim at boosting stock price above the level of intrinsic value.
3. Market timing - Market timing relates to the decision that aims at exploiting temporary mispricing.
Two Key Building Blocks:
1. Limits on arbitrage - Irrational investors impact prices because arbitrage is limited.
2. Smart managers - Managers have the ability to detect when valuations are wrong and they act on mispricing.
Behavioural finance is a concept developed with the inputs taken from the field of psychology and finance. It tries to understand the various puzzling factors in stock markets to offer better explanations for the same.
Behavioural finance is defined as the study of the influence of socio-psychological factors on an asset’s price. It focuses on investor behaviour and their investment decision-making process.
HEURISTICS: (Rule of thumb strategy) Heuristics are referred as rule of thumb, which applies in decision making to reduce the cognitive resources to solve a problem. These are mental shortcuts that simplify the complex methods to make a judgment. Investor as decision maker confronts a set of choices within certainty and limited ability to quantify results. This leads identification and understanding of all heuristics that affect financial decision making. Some of heuristics are representativeness, anchoring & adjustments, familiarity, overconfidence, regret aversion, conservatism, mental accounting, availability, ambiguity aversion and effect. Heuristics help to make decision.
FRAMING: The perceptions of choices that people have are strongly influenced by how these choices are framed. It means choices depend on how question is framed, even though the objective facts remain constant. Psychologists refer this behaviour as a’ frame dependence’. As Glaser, Langer, Reynders and Weber(2007) show that investors forecast of the stock market depends on whether they are given and asked to forecast future prices or future return. So it is how framing has adversely affected people’s choices.
EMOTIONS: Emotions and associated human unconscious needs, fantasies, and fears drive much decision of human beings. How these needs, fantasies, and fears influence financial decision? Behavioural finance recognise the role Keynes’s “animal spirit” plays in explaining investor choices, and thus shaping financial markets (Akerlof and Shiller, 2009). Underlying premises is that our feeling determine psychic reality affect investment judgment.
MARKET IMPACT: Do the Cognitive errors and biases of individuals and groups of people affect market and market prices? Indeed, main attraction of behavioural finance field was that market prices did not appear to be fair. How market anomalies fed an interest in the possibility that they could be explained by psychology? Standard finance argues that investors’ mistakes would not affect market prices because when prices deviate from fundamental value, rational investor would exploit the mispricing for their own profit.
The chapter consists of Expected Utility Theory [EUT] and Rational Thought: Decision Making under Risk and Uncertainty - Expected Utility as a basis for Decision-Making – Theories Based on Expected Utility Concept – Investor Rationality and Market Efficiency. Self Deception – Forms of Over Confidence, Causes of Over Confidence, and other Forms of Self-Deception. Prospect Theory, Difference between EUT and Prospect Theory; Agency Theory; SP/A Theory; Framing, Mental Accounting; Error in Bernoulli’s Theory.
Expected utility theory and its examples. Making decisions under certainty is easy. The cause and effect are known, and the risk involved is minimal. What’s tough is making decisions under risk and uncertainty. The outcome is unpredictable because you don’t have all the information about the alternatives. Before we learn deeper about decision-making under risk and uncertainty, let’s look at each of these situations such as certainty, risk and uncertainty. Despite all the data crunching and predictive technology, businesses these days have to deal with a lot of uncertainty and the ‘what if’ scenarios.
The recent pandemic outbreak has dramatically altered the business landscape globally. Today, decision-making has become more complicated due to the uncertainty all around us.
The Chapter consists of evolutionary aspects of behavioural finance. Discussed Hyperbolic discounting, familiarity bias, heuristics, self-deception, overconfidence, success equation, and EMH. Further, the chapter discussed the emotion and theories of emotions, dimensions of emotions, and social influence on investment and consumption. In psychology, a heuristic is an easy-to-compute procedure or "rule of thumb" that people use when forming beliefs, judgments or decisions. The familiarity heuristic was developed based on the discovery of the availability heuristic by psychologists Amos Tversky and Daniel Kahneman; it happens when the familiar is favored over novel places, people, or things.
The familiarity heuristic can be applied to various situations that individuals experience in day-to-day life. When these situations appear similar to previous situations, especially if the individuals are experiencing a high cognitive load, they may regress to the state of mind in which they have felt or behaved before. The familiarity heuristic stems from the availability heuristic, which was studied by Tversky and Kahneman. The availability heuristic suggests that the likelihood of events is estimated based on how many examples of such events come to mind. Thus the familiarity heuristic shows how "bias of availability is related to the ease of recall.
Individuals automatically assume that their previous behaviour will yield the same results when a similar situation arises. Emotion is a complex, subjective experience accompanied by biological and behavioral changes. Emotion involves feeling, thinking, activation of the nervous system, physiological changes, and behavioural changes such as facial expressions.
In psychology, emotion is often defined as a complex state of feeling that results in physical and psychological changes that influence thought and behavior. Emotionality is associated with a range of psychological phenomena, including temperament, personality, mood, and motivation.
According to author David G. Myers, human emotion involves “ physiological arousal, expressive behaviours, and conscious experience."
Behavioural finance is a concept developed with the inputs taken from the field of psychology and finance. It tries to understand the various puzzling factors in stock markets to offer better explanations for the same.
Behavioural finance is defined as the study of the influence of socio-psychological factors on an asset’s price. It focuses on investor behaviour and their investment decision-making process.
HEURISTICS: (Rule of thumb strategy) Heuristics are referred as rule of thumb, which applies in decision making to reduce the cognitive resources to solve a problem. These are mental shortcuts that simplify the complex methods to make a judgment. Investor as decision maker confronts a set of choices within certainty and limited ability to quantify results. This leads identification and understanding of all heuristics that affect financial decision making. Some of heuristics are representativeness, anchoring & adjustments, familiarity, overconfidence, regret aversion, conservatism, mental accounting, availability, ambiguity aversion and effect. Heuristics help to make decision.
FRAMING: The perceptions of choices that people have are strongly influenced by how these choices are framed. It means choices depend on how question is framed, even though the objective facts remain constant. Psychologists refer this behaviour as a’ frame dependence’. As Glaser, Langer, Reynders and Weber(2007) show that investors forecast of the stock market depends on whether they are given and asked to forecast future prices or future return. So it is how framing has adversely affected people’s choices.
EMOTIONS: Emotions and associated human unconscious needs, fantasies, and fears drive much decision of human beings. How these needs, fantasies, and fears influence financial decision? Behavioural finance recognise the role Keynes’s “animal spirit” plays in explaining investor choices, and thus shaping financial markets (Akerlof and Shiller, 2009). Underlying premises is that our feeling determine psychic reality affect investment judgment.
MARKET IMPACT: Do the Cognitive errors and biases of individuals and groups of people affect market and market prices? Indeed, main attraction of behavioural finance field was that market prices did not appear to be fair. How market anomalies fed an interest in the possibility that they could be explained by psychology? Standard finance argues that investors’ mistakes would not affect market prices because when prices deviate from fundamental value, rational investor would exploit the mispricing for their own profit.
The chapter consists of Expected Utility Theory [EUT] and Rational Thought: Decision Making under Risk and Uncertainty - Expected Utility as a basis for Decision-Making – Theories Based on Expected Utility Concept – Investor Rationality and Market Efficiency. Self Deception – Forms of Over Confidence, Causes of Over Confidence, and other Forms of Self-Deception. Prospect Theory, Difference between EUT and Prospect Theory; Agency Theory; SP/A Theory; Framing, Mental Accounting; Error in Bernoulli’s Theory.
Expected utility theory and its examples. Making decisions under certainty is easy. The cause and effect are known, and the risk involved is minimal. What’s tough is making decisions under risk and uncertainty. The outcome is unpredictable because you don’t have all the information about the alternatives. Before we learn deeper about decision-making under risk and uncertainty, let’s look at each of these situations such as certainty, risk and uncertainty. Despite all the data crunching and predictive technology, businesses these days have to deal with a lot of uncertainty and the ‘what if’ scenarios.
The recent pandemic outbreak has dramatically altered the business landscape globally. Today, decision-making has become more complicated due to the uncertainty all around us.
The Chapter consists of evolutionary aspects of behavioural finance. Discussed Hyperbolic discounting, familiarity bias, heuristics, self-deception, overconfidence, success equation, and EMH. Further, the chapter discussed the emotion and theories of emotions, dimensions of emotions, and social influence on investment and consumption. In psychology, a heuristic is an easy-to-compute procedure or "rule of thumb" that people use when forming beliefs, judgments or decisions. The familiarity heuristic was developed based on the discovery of the availability heuristic by psychologists Amos Tversky and Daniel Kahneman; it happens when the familiar is favored over novel places, people, or things.
The familiarity heuristic can be applied to various situations that individuals experience in day-to-day life. When these situations appear similar to previous situations, especially if the individuals are experiencing a high cognitive load, they may regress to the state of mind in which they have felt or behaved before. The familiarity heuristic stems from the availability heuristic, which was studied by Tversky and Kahneman. The availability heuristic suggests that the likelihood of events is estimated based on how many examples of such events come to mind. Thus the familiarity heuristic shows how "bias of availability is related to the ease of recall.
Individuals automatically assume that their previous behaviour will yield the same results when a similar situation arises. Emotion is a complex, subjective experience accompanied by biological and behavioral changes. Emotion involves feeling, thinking, activation of the nervous system, physiological changes, and behavioural changes such as facial expressions.
In psychology, emotion is often defined as a complex state of feeling that results in physical and psychological changes that influence thought and behavior. Emotionality is associated with a range of psychological phenomena, including temperament, personality, mood, and motivation.
According to author David G. Myers, human emotion involves “ physiological arousal, expressive behaviours, and conscious experience."
International Banking - presentation involves introduction to IB, Types, Services Offered, Reasons, Features and Benefits, Its Working, Challenges, and Trends in IB
What is Dividend ?
What is Dividend Decision ?
Factors affecting Dividend Decision.
Concepts of Dividend Decision.
The Irrelevance Concept.
The Relevance Concept.
References.
International Banking - presentation involves introduction to IB, Types, Services Offered, Reasons, Features and Benefits, Its Working, Challenges, and Trends in IB
What is Dividend ?
What is Dividend Decision ?
Factors affecting Dividend Decision.
Concepts of Dividend Decision.
The Irrelevance Concept.
The Relevance Concept.
References.
Class assignment on an introduction to corporate finance which includes the following topics-
1. What is corporate finance?
2. Finance in the organizational structure of a firm
2.1 organization of finance function
2.2 financial manager
3. Finance functions
3.1 executive finance function
3.2 routine finance function
4. Goals of corporate finance
4.1 profit maximization
4.2 limitations of profit maximization
4.3 wealth maximization
4.4 limitations of wealth maximization
5. Corporate finance and related disciplines
5.1 relationship with economics
5.2 relationship with accounting
5.3 relationship with mathematics
6. The agency problem
6.1 agency
6.2 agency problems between shareholders and managers
6.3 resolving conflicts between shareholders and managers
6.4 agency problems between shareholders and creditors
6.5 resolving conflicts between shareholders and creditors
7. Development of corporate finance
Hope you guys find it helpful.
Chapter 1 Introduction to Financial ManagementSafeer Raza
Chapter 1 of Financial Management by Van horn
Introduction to Financial management
Topics
Introduction
What is Financial Management
Investment Decision
Financing decision
Asset management Decision
Goal of the firm
Value creation or profit maximization
wealth maximization
Agency problems
Corporate Social Responsibility
Corporate governance
Organization of the financial management function
Presentation by Kees Koedijk. Professor of Financial Management and Dean of the Tilburg School of Economics and Management, held on June 8 at an ICPM conference in Toronto. Also visit the website www.investmentbeliefs.org
If this book were a fairy tale, perhaps it would have a happier en.docxwilcockiris
If this book were a fairy tale, perhaps it would have a happier ending. The unfortunate fact is that the individual investor has few, if any, attractive investment alternatives. Investing, it should be clear by now, is a full-time job. Given the vast amount of information available for review and analysis and the complexity of the investment task, a part-time or sporadic effort by an individual investor has little chance of achieving long-term success. It is not necessary, or even desirable, to be a professional investor, but a significant, ongoing commitment of time is a prerequisite. Individuals who cannot devote substantial time to their own investment activities have three alternatives: mutual funds, discretionary stockbrokers, or money managers.
Mutual Funds
Mutual funds are, in theory, an attractive alternative for the individual investor, combining professional management, low transaction costs, immediate liquidity, and reasonable diversification. In practice, they mostly do a mediocre job of managing money. There are, however, a few exceptions to this rule.
For one thing, investors should certainly prefer no-load over load funds; the latter charge a sizable up-front fee, which is used to pay commissions to salespeople. Unlike closed-end funds, which have a fixed number of shares that fluctuate in price according to supply and demand, open-end funds issue new shares and redeem shares in response to investor interest. The share price of open-end funds is always equal to net asset value, which is based on the current market prices of the underlying holdings. Because of the redemption feature that ensures both liquidity and the ability to realize current net asset value, open-end funds are generally more attractive for investors than closed-end funds.1
Unfortunately for their shareholders, because open-end mutual funds attract and lose assets in accordance with recent results, many fund managers are participants in the short-term relative-performance derby. Like other institutional investors, mutual fund organizations profit from management fees charged as a percentage of the assets under management; their fees are not based directly on results. Consequently, the fear of asset outflows resulting from poor relative performance generates considerable pressure to go along with the investment crowd.
Another problem is that open-end mutual funds have in recent years attracted (and even encouraged) "hot" money from speculators looking to earn quick profits without the risk or bother of direct stock ownership. Many highly specialized mutual funds (e.g., biotechnology, environmental, Third World)
have been established in order to exploit investors' interests in the latest market fad. Mutual-fund-marketing organizations have gone out of their way to encourage and even incite investor enthusiasm, setting up retail mutual fund stores, providing hourly fund pricing, and authorizing switching among their funds by telephone. They do not discourage the .
FINANCIAL MANAGEMENT, ROLE OF FINANCIAL MANAGEMENT, IMPORTANCE OF FINANCIAL MANAGEMENT, FEATURES OF FINANCIAL MANAGEMENT, SCOPE OF FINANCIAL MANAGEMENT, FUTURE OF FINANCIAL MANAGEMENT, etc.
The chapter consists of Tax Deducted at Source and Collection of Tax at source.
Tax Deducted at Source (TDS) is one of the ways to collect tax based on certain percentages on the amount payable by the receiver on goods/services. The collected tax is a revenue for the government.
Who is liable to deduct TDS under GST law?
A. A department or an establishment of the Central Government or State Government; or
B. Local authority; or
C. Governmental agencies; or
D. Such persons or category of persons as may be notified by the Government.
As per the latest Notification dated 13th September 2018, the following entities also need to deduct TDS-
An authority or a board or any other body which has been set up by Parliament or a State Legislature or by a government, with 51% equity ( control) owned by the government.
A society established by the Central or any State Government or a Local Authority and the society is registered under the Societies Registration Act, 1860.
Public sector undertakings.
What is TCS under GST
Tax Collected at Source (TCS) under GST means the tax collected by an e-commerce operator from the consideration received by it on behalf of the supplier of goods, or services who makes supplies through the operator’s online platform. TCS will be charged as a percentage on the net taxable supplies. The provision of TCS under GST is dealt under Section 52 of the CGST Act.
Who is liable to collect TCS under GST
Certain operators who own, operate and manage e-commerce platforms are liable to collect TCS. TCS applies only if the operators collect the consideration from the customers on behalf of vendors or suppliers. In other words, when the e-commerce operators pay the consideration collected to the vendors they have to deduct an amount as TCS and pay the net amount.
Here are few exceptions to the TCS provisions for the services provided by an e-commerce platform:
Hotel accommodation/clubs (unregistered suppliers)
Transportation of passengers – radio taxi, motor cab or motorcycle
Housekeeping services like plumbing, carpentry etc. (unregistered suppliers)
For example – M/s.XYZ stores (a proprietorship) is selling garments through Flipkart. Flipkart, being an e-commerce operator, before it makes the payment of consideration collected on behalf of XYZ, will be liable to deduct TCS.
What is the rate applicable under TCS
The dealers or traders supplying goods and/or services through e-commerce operators will receive payment after deduction of TCS @ 1%. The rate is notified by the CBIC in Notification no. 52/2018 under CGST Act and 02/2018 under IGST Act.
This means for an intra-state supply TCS at 1% will be collected, i.e 0.5 % under CGST and 0.5% under SGST. Similarly, for a transaction between the states, the TCS rate will be 1%, i.e under the IGST Act.
The chapter consists of Computation of Tax Liability and Payment of Tax; Interest on Delayed Payment of Tax; Refund of Tax; Tax Deduction at Source (TDS); Collection of Tax at Source (TCS); Computation of Interest on Delayed Payment of Tax. Composition scheme, eligible tax payers, turn over limit in case of composition scheme. Eligibility for composition scheme, person not eligible to opt composition scheme, conditions for availing composition scheme, advantages and disadvantages of composition scheme, computation of tax liability, Interest on delayed payment of tax,
Refund of Tax: Usually when the GST paid is more than the GST liability a situation of claiming GST refund arises. Under GST the process of claiming a refund is standardized to avoid confusion. The process is online and time limits have also been set for the same.
When can the refund be claimed?
There are many cases where refund can be claimed. Here are some of them – Excess payment of tax is made due to mistake or omission.
Dealer Exports (including deemed export) goods/services under claim of rebate or Refund
ITC accumulation due to output being tax exempt or nil-rated
Refund of tax paid on purchases made by Embassies or UN bodies
Tax Refund for International Tourists
Finalization of provisional assessment
How to calculate GST refund?
Let’s take a simple case of excess tax payment made. Mr. B’s GST liability for the month of September is Rs 50000. But due to mistake, Mr. B made a GST payment of Rs 5 lakh. Now Mr. B has made an excess GST payment of Rs 4.5 lakh which can be claimed as a refund by him. The time limit for claiming the refund is 2 years from the date of payment.
The chapter consists of basics of Goods and Service Tax, Tax Invoice; Credit and Debit Notes; E-Way Bill, Procedure for Generation of E-Way Bill; Accounts and Records; Electronic Cash Ledger, Manner of Utilization of Amount in Electronic Cash Ledger, Electronic Credit Ledger-Manner of Utilization of ITC, Electronic Liability Ledger-Order of Discharge of Tax and Other Dues.
An invoice is a commercial instrument issued by a supplier of goods/services to a recipient.
In GST, all invoices issued between the date of implementation of GST and the date of issuance of GST registration certificate will have to be reissued in the form of a revised invoice and have to be raised within a month of issuance of the registration certificate.
A supplementary tax invoice is an invoice that a taxable person issues if any deficiency is found in a tax invoice already issued by the said taxable person. A supplementary invoice is also known as a debit note.
The recipient who is registered under GST has to issue a payment voucher for the transactions(goods or services) on which reverse charge is applicable to the supplier. For example Ajay cashew house registered in Delhi had purchased cashew nuts from Vikram an agriculturist for Rs 100000 in Karnataka.
Rule 55 specifies the cases where at the time of removal of goods, goods may be removed on delivery challan and invoice may be issued after delivery. Issuance of Credit Note – Section 34(1)
Issuance of Debit Note – Section 34(3)
Details of Credit Note to be furnished in return – Section 34(2)
Details of Debit Note to be furnished in return – Section 34(4)
EWay Bill is an Electronic Way bill for movement of goods to be generated on the eWay Bill Portal. A GST registered person cannot transport goods in a vehicle whose value exceeds Rs. 50,000 (Single Invoice/bill/delivery challan) without an e-way bill that is generated on ewaybillgst.gov.in.
Registered Person – E-way bill must be generated when there is a movement of goods of more than Rs 50,000 in value to or from a registered person. A Registered person or the transporter may choose to generate and carry eway bill even if the value of goods is less than Rs 50,000.
e-Cash ledger indicates the amount that has been paid by the taxpayer to the government. The amount in this ledger can be used to make payment of tax, interest, liability, fees and so forth.
e-Credit ledger or electronic credit ledger is maintained in the form GST PMT-02 on the GST Portal.
This ledger helps in tracking all the Input Tax Credit (ITC) claims made by the taxpayer. However, it shall be noted that any remaining amount in the e-Credit ledger can be used in making the payment of output tax liability only. E-Liability Register will reflect the total tax liability of a taxpayer for a particular tax period.
Debit to Electronic Credit Ledger and Credit to Electronic Liability Register
Unit 5 CSM: Strategic Evaluation and ComtrolDayanand Huded
The chapter comprises of Overview of Strategic Evaluation; Strategic Control; Techniques of Strategic Evaluation and Control. Evaluation of Strategic Alternatives - Product Portfolio Models, BCG Matrix, GE Matrix, Gap Analysis; Strategic Control System.
Strategic evaluation and control is the final phase in the process of strategic management. Its basic purpose is to ensure that the strategy is achieving the goals and objectives set for the strategy. It compares performance with the desired results and provides the feedback necessary for management to take corrective action.
According to Fred R. David, strategy evaluation includes three basic activities
(1) examining the underlying bases of a firm’s strategy,
(2) comparing expected results with actual results, and
(3) taking corrective action to ensure that performance conforms to plans. Sometime, the best formulated strategies become obsolete (outdated) as a firm’s external and internal environments change.
Strategic control is a type of “steering control”. We have to track the strategy as it is being implemented, detect any problems or changes in the predictions made, and make necessary adjustments. This is especially important because the implementation process itself takes a long time before we can achieve the results.
Strategic control is like an alarm long before the calamity can happen.
Operational control is the process of ensuring that specific tasks are carried out effectively and efficiently. The operational control aims at evaluating the performance of the organization. Most of the control system in organization are operational in nature. Some examples of operational control are : Budgetary control, Quality control, Inventory control, Production Control, Cost control etc.
Portfolio Model is a technique used to analyse organisations in relation to their environments
Portfolio (set, collection, assortment, range, group)
A business Portfolio may be any collection of brands/products, markets, branches /divisions, income generating assets, etc.
PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)
Helps managers in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic point in time
After portfolio analysis firm makes an informed strategic choice e.g.
To have a balanced portfolio (minimize risk and maximize return) of all portfolios
To actively deploy a retrenchment strategy
Unit V AMM Green Marketing, CRM & Rural MarketingDayanand Huded
The Presentation comprises of Green marketing, Customer relationship management and rural marketing.
Green marketing is the marketing of products that are presumed to be environmentally safe. It incorporates a broad range of activities, including product modification, changes to the production process, sustainable packaging, as well as modifying advertising.
The term ‘green’ is indicative of purity. Green means pure in quality and fair or just in dealing. For example, green advertising means advertising without adverse impact on society. Green message means matured and neutral facts, free from exaggeration or ambiguity.
CRM: Customer Relationship Management is a comprehensive approach for creating, maintaining and expanding customer relationships.
CRM “is a business strategy that aims to understand, anticipate and manage the needs of an organisation’s current and potential customers”
It is a “comprehensive approach which provides seamless integration of every area of business that touches the customer- namely marketing, sales, customer services and field support through the integration of people, process and technology”
CRM is a shift from traditional marketing as it focuses on the retention of customers in addition to the acquisition of new customers
“The expression Customer Relationship Management (CRM) is becoming standard terminology, replacing what is widely perceived to be a misleadingly narrow term, relationship marketing (RM)”
CRM (Customer Relationship Management) is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer.
The basic objective of CRM is to increase marketing efficiency and effectiveness.
Rural Marketing:
Rural marketing is a practise of assessing, persuading and converting the needs, wants, purchasing power of the customers into effective demand for products and service out for sale which would help in sufficing the requirements of people in the rural areas and thus increase the satisfaction levels as well as standard of living.
There are 600,000 villages in India. 25% of all villages account for 65% of the total rural population. So we can contact 65% of 680 million or 700 million population by simply contacting 150000 villages – which shows the huge potential of this market.
Rural marketing involves the process of developing, pricing, promoting, distributing rural specific product and a service leading to exchange between rural and urban market which satisfies consumer demand and also achieves organizational objectives.
The chapter comprises of Service Marketing, E-Marketing, Green Marketing, Customer Relationship Management, Rural Marketing; Other Emerging Trends- Ethical Issues in Marketing.
Service is an act or performance that one party can offer to another that is essentially intangible and does not result in any ownership of anything. Its production may or may not be tied to physical products.(Philip Kotler)
It is based on relationship and value.
It may be used to market a service or product.
What is Service Marketing?
The American Marketing Association defines services marketing as “an organizational function and a set of processes for identifying or creating, communicating, and delivering value to customers and for managing customer relationship in a way that benefit the organization and stake-holders”.
Service marketing is involved in designing, delivering, and doing post-delivery analysis of services for optimizing reach, measuring customer satisfaction, and standing-out from identical services offered by other market players.
Intangibility: A service is not a physical product that you can touch or see. A service can be experienced by the buyer or the receiver. Also, you can not judge the quality of the service before consumption.
Heterogeneous: There can be no perfect standardization of services. Even if the service provider remains the same, the quality of the service may differ from time to time.
Inseparability: One unique characteristic of services is that the service and the service provider cannot be separated. Unlike with goods/products the manufacturing and the consumption of services cannot be separated by storage.
No Stock Maintenance: The production and consumption of services are not inseparable because storage of services is not possible. Being an intangible transaction there can never be an inventory of services.
The potential customers form an impression about the service on the basis of service environment. The service environment represents the physical back drop that surrounds the service.
For example, providing hygienic food is the core service in a hotel or restaurant. Customers expect the restaurants to be maintained clean, offer flexible dining hours prompt service, soft music, décor, exotic menu etc.
Advantages of Service Marketing: 1, Repeat business
When you build a plan of service to reach your customers, you can expect a reward of repeat business from them. The goal of effectively marketing your brand is to capture the attention of your target market.
2. referrals
The next best thing to having your clients come back is to have them tell others about their experience and recommend your products or services to them. You must consider that if your customers have a bad experience, it is likely they will tell 10 people about that negative experiences also.
3. publicity
Other benefits from your good service are through publicity. As the buzz flows about your outstanding service, from following through on what you’ve promised.
The chapter comprises of Meaning and Characteristics, Importance, Factors Influencing Consumer Behaviour, Consumer Purchase Decision Process, Buying Roles, Buying Motives, Buyer Behaviour Models.
Consumer behaviour is the study of how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants.
It refers to the. actions of the consumers in the marketplace and the underlying motives for those actions.
Consumer behaviour is the study of how people make decisions about what they buy, want, need, or act in regards to a product, service or company.
It is a study of the actions of the consumers that drive them to buy and use certain products. Understanding consumer buying behavior is most important for marketers as it helps them to relate better to the expectation of the consumers.
a) Consumer behavior is the part of human behavior: This cannot be separated. Human behavior decides what to buy, when to buy etc. This is unpredictable in nature. Based on the past behavioral pattern one can at least estimate like the past he might behave.
b) Learning the consumer is difficult and complex as it involves the study of hum beings: Each Individual behaves differently when he is placed at different situations. Every day is a lesson from each and every individual while we learn the consumer behavior. Today one may purchase a product because of its smell, tomorrow it may vary and he will purchase another due to some another reason.
c) Consumer behavior is dynamic: A consumer's behavior is always changing in nature: The taste and preference of the people vary. According to that consumers behave differently. As the modern world changes the consumer's behaving pattern also changes.
d) Consumer behavior is influenced by psychological, social and physical factors: A consumer may be loyal with a product due to its status values. Another may stick with a product due to its economy in price. Understanding these factors by a marketer is crucial before placing the product to the consumers.
1. To design production policies: This is the first importance of consumer behaviour and it means that all the production policies have designed taking into consideration the consumer preference so that product can be successful in the market.
2. Know the effect of price on buying: This is the second consumer behaviour importance and it means that consumer behavior can help in understanding the effect of price on buying. Whenever the price is moderate on cheap more and more customer will buy the product.
After the time of production, there comes a time in which the company has to decide what the price of our product will be because it helps to divide the categories of the customer and also helps to attain more sales.
3. Exploit the market opportunities: This is the third importance or significance of consumer behaviour and it means that the change in consumer preference can be a good opportunity for the marketing
The chapter comprises of Meaning, Environment, Raising of Finance in International Markets, Euro Issues, GDRs and ADRs Guidelines for Raising Funds in International Markets through various Instruments; Working of International Stock Exchanges with respect to their Size - Listing Requirements, Membership, Clearing and Settlement of New York Stock Exchange, NASDAQ, London Stock Exchange, Tokyo Stock Exchange, Luxembourg Stock Exchange, German and France Stock Exchanges.
The international stock market refers to all the international markets that negotiate stocks from their domestic companies. For example, you can buy stocks from Apple at the local American market, but to get stocks from the Japanese Sapporo, you need to go the international (Japanese) market. Most countries have their own stock exchange.
Part of the financial system concerned with raising long-term capital through shares, bonds, and other long-term investments.
EURO ISSUE:
The term `euro' denotes that the issue is listed on a European Stock Exchange.
A euro issue is a issue where the securities are issued in a currency different from the currency of the country of issue and the securities are sold in international market to individual and institutional investors.
Euro securities are negotiable and transferable securities distributed by a syndicate of market intermediaries and underwriters, By an euro issue, a company is able to raise funds at a cheaper rate, Euro bond is an international bond issued to investors from throughout the world.
A global depositary receipt (GDR) is a certificate issued by a bank that represents shares in a foreign stock on two or more global markets. GDRs typically trade on American stock exchanges as well as Eurozone or Asian exchanges.
GDRs represent ownership of an underlying number of shares of a foreign company and are commonly used to invest in companies from developing or emerging markets by investors in developed markets.
Prices of global depositary receipt are based on the values of related shares, but they are traded and settled independently of the underlying share.
ADR's are depository receipts issued in United States of America (USA) in accordance with the provisions of Securities and Exchange Commission.
American Depository Receipts (ADRs) offer US investors a means to gain investment exposure to non-US stocks without the complexities of dealing in foreign stock markets.
It refers to a negotiable certificate issued by a U.S. depositary bank representing a specified number of shares usually one share of a foreign company's stock.
The ADR trades on U.S. stock markets as any domestic shares would. ADRs offer U.S. investors a way to purchase stock in overseas companies that would not otherwise be available.
It is denominated in US $
INFOSYS Technologies was the First Indian Company to issue ADR.
The chapter comprises of The Depositories Act, 1996; SEBI Depositories and Participants Regulations 1996 and 2012; Types of Depositories - NSDL, CDSL and Depository Participant; Dematerialization - International Securities Identification Number (ISIN) - Procedure for Dematerialization and Rematerialization; Settlement of Off- Market Transactions: Insider Trading - Legal Framework for Investor Protection in India; Internet Initiatives at Depository services; Credit Rating- Meaning and Necessity, Methodology of Credit Rating, Credit Rating Agencies in India.
What is Depository?
An organization where the securities of an investor are held in electronic form at the request of the investor and which carries out the securities transactions by book entry through the medium of a depository participant.
What is a Depository System?
A system whereby transfer of securities takes place by means of book entry on the ledgers of the Depository without physical movement of scripts.
Problems Resulted in Formation of Depository
Before introduction of Depository system, the problems faced by investors and corporates in handling large volume of paper were as follows:
1)Bad deliveries, 2) Fake certificates, 3) Loss of certificates in transit
4) Mutilation of certificates, 5) Delays in transfer Long settlement cycles, 6), Mismatch of signatures, 7) Delay in refund and remission of dividend etc.
Code of Conduct for Participants
1. A participant shall make all efforts to protect the interests of investors.
2. A participant shall always endeavour to—
(a) render the best possible advice to the clients having regard to the clients needs and the environments and his own professional skills;
grievances of investors are redressed without any delay
3. A participant shall maintain high standards of integrity in all its dealings with its clients and other intermediaries, in the conduct of its business.
4. A participant shall be prompt and diligent in opening of a beneficial owner account, dispatch of the dematerialisation request form, rematerialisation request form and execution of debit instruction slip and in all the other activities undertaken by him on behalf of the beneficial owners.
5. A participant shall endeavour to resolve all the complaints against it or in respect of the activities carried out by it as quickly as possible, and not later than one month of receipt.
6. A participant shall not increase charges/fees for the services rendered without proper advance notice to the beneficial owners.
7. A participant shall not indulge in any unfair competition, which is likely to harm the interests of other participants or investors or is likely to place such other participants in a disadvantageous position while competing for or executing any assignment.
8. A participant shall not make any exaggerated statement whether oral or written to the clients either about its qualifications or capability to render certain services or about its achievements in regard to SE.
The chapter comprises of Importance and Functions, Listing of Securities in Stock Exchanges; Players in Stock Exchange - Investors, Speculators, Market Makers, Stock Brokers; Eligibility Criteria; Trading in Stock Exchange, Stock Exchanges - Bombay Stock Exchange, National Stock Exchange, Over-the-Counter Exchange of India; The SEBI Trading Mechanism - BOLT, NEAT System and Screen Based System.
Listing refers to the admission of the securities of a company on a recognised stock exchange for trading. Listing of securities is undertaken with the primary objective of providing marketability, liquidity and transferability of shares.
To be submitted along with the application for listing:-
1. Memorandum of Associations, Articles of Association, Prospectus, Directors’ report, Annual Accounts, Agreement with Underwriters, etc.
2. Company’s activities, capital structure, distribution of shares, dividends and bonus shares issued, etc.
Listing Requirements:
For this purpose companies have been classified into 2 groups:-
1. Large Cap Companies (minimum issue size of Rs.10 crores and market capitalization of not less than Rs.25 crores)
2. Small Cap Companies (minimum issue size of Rs.3 crores and market capitalization of not less than Rs.5 crores)
Trading in Stock Exchange
The system of trading in stock exchanges for many years was known as floor trading.
In the new electronic stock exchanges which have fully automated computerized mode of trading, floor trading is replaced with a new system of trading known as screen-based trading.
Screen-based trading are two types
1. Quote driven system 2. Order driven system
Under the quote driven system the market- maker, who is a dealer in particular security, input two way quotes into the system that is bid price and offer price .
Under the order driven system clients place their buy and sell orders with the brokers.
Types of Orders
An investor may place two type of orders
1. Market order-In market order the broker is instructed by the investor to buy or sell a stated number of share immediately at the best price in the market.
2. Limit order- It is an order for the purchase or sale of securities at a fixed price specified by the client. “ buy at Rs. 50 or less” “ sell at Rs. 60 or more” No guarantee that limit order will be executed
National Stock Exchange
Established in 1992
Girish Chandra Chaturvedi, Chairperson
Ashishkumar Chauhan, MD and CEO
NSE is ranked 4th in the world in cash equities by number of trades as per the statistics maintained by the World Federation of Exchanges (WFE) for the calendar year 2021
First dematerialized electronic exchange in the country.
Number of Lists 2002 (As of October 2021)
The exchange was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in 1993 under the Securities Contracts (Regulation) Act, 1956, when P. V. Narasimha Rao was the Prime Minister of India and Manmohan Singh was the Finance Minister.
The chapter comprises of Primary Market - Its Role and Functions; Issue of Capital - Methods of Issuing Securities in Primary Market, Intermediaries in New Issue Market - Merchant Bankers, Underwriters, Brokers, Registrars and Managers Bankers; Pricing of Issue - Book Building, Green Shoe Option, Procedure for New Issues and SEBI Guidelines for Issue in Primary Market.
The primary market is where securities are created. It's in this market that firms sell (float) new stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example of a primary market.
These trades provide an opportunity for investors to buy securities from the bank that did the initial underwriting for a particular stock.
An IPO occurs when a private company issues stock to the public for the first time.
Companies and government entities sell new issues of common and preferred stock, corporate bonds and government bonds, notes, and bills on the primary market to fund business improvements or expand operations. Although an investment bank may set the securities' initial price and receive a fee for facilitating sales, most of the funding goes to the issuer. Investors typically pay less for securities on the primary market than on the secondary market.
A rights offering (issue) permits companies to raise additional equity through the primary market after already having securities enter the secondary market. Current investors are offered prorated rights based on the shares they currently own, and others can invest anew in newly minted shares.
Companies can raise capital at relatively low cost, and the securities so issued in the primary market provide high liquidity as the same can be sold in the secondary market almost immediately.
The primary market is an important source for mobilisation of savings in an economy. Funds are mobilised from commoners for investing in other channels. It leads to monetary resources being put into investment options.
Chances of price manipulation in the primary market are considerably less when compared to the secondary market. Such manipulation usually occurs by deflating or inflating a security price, thereby deliberately interfering with fair and free operations of the market.
The primary market acts as a potential avenue for diversification to cut down on risk. It enables an investor to allocate his/her investment across different categories involving multiple financial instruments and industries.
It is not subject to any market fluctuations. The prices of stocks are determined before an initial public offering, and investors know the actual amount they will have to invest.
Unit II Tax Planning and Company PromotionDayanand Huded
The chapter comprises of Meaning of Tax Planning, Tax Avoidance, Tax Evasion and Tax Management; Features and Scope for Tax Planning; Business Location and Tax Planning; Nature of Business and Tax Planning: FTZ, Units in SEZ, 100% EOU and Infrastructure Development.
Tax planning is a focal part of financial planning. It ensures savings on taxes while simultaneously conforming to the legal obligations and requirements of the Income Tax Act, 1961. The primary concept of tax planning is to save money and mitigate one's tax burden.
Tax Planning is the arrangement of financial activities in such a way that maximum tax benefits are enjoyed by making use of all beneficial provisions in the tax laws. It entitles the assessee to avail certain exemptions, deductions, rebates and reliefs, so as to minimise its tax liability.
(i) Reduction of tax liability: One of the supreme objectives of tax planning is the reduction of the tax liability of the payer and the resultant saving of the earnings for a better enjoyment of the fruits of hard labour.
(ii) Minimization of litigation and the tax payer may be saved from the hardships and inconveniences caused by unnecessary litigations.
(iii) Productive investment: Tax planning is a measure of awareness of the taxpayer to the intricacies of the taxation laws and it is the economic consciousness of the income earner to find out the ways and means of productive investment of the earnings which would go a long way to minimize its tax burden.
(iv) Healthy growth of economy: The saving of earnings is the only basement upon which the economic structure of human life is founded.
(v) Economic stability: Productive investment increase contours of the national economy embracing in itself the economic prosperity of not only the tax payers but also of those who earn the income not chargeable to tax. The planning thus creates economic stability of the nation and its people by even distribution of economic resources.
(i) Residential status and citizenship of the assessee: We know that a non-resident in India is not liable to pay income-tax on incomes which accrue or arise and are also received outside India, whereas a resident in India is liable to pay income-tax on such incomes.
(ii) Heads of income/assets to be included in computing net wealth: Before the Tax-planner goes in for his task; he has to have a full picture of the sources of Income of the tax payer and the members of his family
This chapter consists of E-commerce Transaction and Liability in Special Cases; Tonnage Taxation, TDS; Advance Payment of Tax with reference to Corporate Assessee; TCS; Administrative Procedure; Assessment- Procedures and Types of Assessment; Return on Income; Statement of Financial Transaction (SFT). E-Filing: Appeal and Revision; Penalties.
Electronic contracts are governed by the basic principles elucidated in the Indian Contract Act, 1872, which mandates that a valid contract should have been entered with a free consent and for a lawful consideration between two adults.
Investments in the E-Commerce Space in India Foreign direct investment (“FDI”) in India is regulated under the Foreign Exchange Management Act 1999 (“FEMA”). The Department of Industrial Policy and Promotion (“DIPP”), Ministry of Commerce and Industry, Government of India makes policy pronouncements on FDI through Press Notes and Press Releases which are notified by the Reserve Bank of India (“RBI”) as amendments to Foreign Exchange Management Regulations, 2000
Tonnage Tax is a way for qualifying shipping companies to calculate their shipping related profits for Corporation Tax (CT) purposes. The shipping related profits are calculated based on the tonnage of the ships used in the company's shipping trade.
A tonnage tax is a taxation mechanism that can be applied to shipping companies instead of ordinary corporate taxation. The tax is determined by the net tonnage of the entire fleet of vessels under operation or use by a company. It is on the basis of this variable that taxation is applied.
Tonnage Tax is a way for qualifying shipping companies to calculate their shipping related profits for Corporation Tax (CT) purposes. The shipping related profits are calculated based on the tonnage of the ships used in the company’s shipping trade.
The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
Tax Planning with Reference to Managerial Decisions_NC.pdfDayanand Huded
This chapter comprises of Financial Decisions: Capital Structure Decisions; Dividend Policy; Bonus Shares and Capital Gains; Bond Washing Transactions; Own or Lease of an Asset, Installment or Hire Purchase, Make or Buy Decisions, Buying an Asset with Own Fund or Borrowed Fund and Repair, Replace, Renewal or Renovation; Shutdown or Continue: Tax Planning in respect of Amalgamation or De-Merger of Companies, Conversion of a Firm into a Company; Conversion of Sole Proprietorship into Company, Conversion of Company into Limited Liability Partnership.
Cost of Capital and also expenditure incurred in raising of such capital. Expectation of shareholders by way of dividend, growth etc. Expansion need of the business i.e. the rate by which profits of the business shall be again ploughed back in the business.
If the return on investment > rate of interest , maximum debt funds may be used, since is shall increase the rate of return on equity . However, cost of raising debt fund should be kept in mind.
if rate of return on investment < rate of interest, minimum debt funds should be used.
Where assessee enjoys tax holidays under various provisions of Income-Tax in such case minimum debt fund should be used, since the profit arising from business is fully exempt from tax which increase the rate of return of equity capital. But the borrowed funds reduces the profits ( profits less interest) before tax and to the extent exemption is reduce.
bond washing transaction can be defined as a transaction where some securities are sold sometime before the due date of Interest and reacquired after the due date is over. In order to discourage such transactions section 94 was introduced.
Where the owner of any securities (in this sub- section and in subsection (2) referred to as" the owner") sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise.
Bond washing is the practice of selling a bond just before it pays a coupon payment and then buying it back once the coupon has been paid. Bond washing previously could result in apparently tax-free capital gains because after the coupon has been paid, the bond will often sell for less. However, the practice has been banned in most major jurisdictions.
The Chapter comprises of Carry Forward and Set Off of Losses in the case of Companies, Computation of Taxable Income of Companies; Computation of Corporate Tax Liability; Minimum Alternate Tax; and Tax on Distributed Profits of Domestic Companies. Surcharge, Minimum Alternate Tax, Problems on MAT.
The Finance Act, 2022 has inserted a new section 79A to the Income-tax Act to restrict set off of losses consequent to search, requisition and survey. It has been provided that in case the total income of any previous year of an assessee includes any undisclosed income detected as a result of:
(a) Search initiated under section 132; or
(b) A requisition made under section 132A; or
(c) A survey conducted under section 133A other than under section 133A(2A).
Then, no set-off of any loss, whether brought forward or otherwise, or unabsorbed depreciation, shall be allowed against such undisclosed income while computing the total income of the assessee for such previous year.
The total income of accompany is also computed in the manner in which income of any assessee is computed. A company is assessed in its own name; i.e. a company pays tax on its income as a distinct unit. A tax paid by a company is not deemed to have been paid on behalf of its shareholders. It is determined as follows:
1. First ascertain income under the different heads of income.
2. Income of other persons may be included in the income of the company under sections 60 and 61( para 206 and 207)
3. Current and brought forward losses should be adjusted according to the provisions of sections 70 to 80 (as per para 226 to 233).Para 335 of section 79 provides all the provisions regarding set off and carry forward of losses of closely held companies.
4. The total income so derived under computation of different heads of income is “Gross Total Income”.
5. Following deductions are allowed from the Gross total income so computed, under section 80C to 80 U
The chapter consists of organizational structure of financial system, Components of financial system, Functions of securities of market, securities market and economic growth, profile of Indian securities market, structure of stock exchange, OTCEI, SEBI Act-1992, Role of SEBI in capital market, powers and functions of SEBI, Securities contract regulation act 1956, Reforms to promote investor confidence, and Role of International Organisation of Securities COmmissions.
Substance of Emotion, Theories of Emotion, Types and Dimensions of Emotions, Emotional Styles; Fairness, Reciprocity and Trust; Conformity; Bayesian Decision Making, Heuristics and Cognitive Biases; Neuro Finance and Trader’s Brain.
The concept of emotion may seem simple, but scientists often have trouble agreeing on what it really means. Most scientists believe that emotions involve things other than just feelings
The way that someone experiences an emotion. A feeling is something that you experience internally, in your own mind, and that other people can understand based on your behavior. You can help other people understand how you feel using emotion terms, like “anger” or “sadness”—the subject of this study—or by using analogies, like “I feel the way a kid would feel if her dad took away her Halloween candy.”
They involve bodily reactions, like when your heart races because you feel excited. They also involve expressive movements, including facial expressions and sounds—for example, when you say “woah” because you are fascinated by something. And emotions involve behaviors, like yelling at someone when you are angry.
People use many different words to describe the emotions that they feel.
The patterns of emotion that we found corresponded to 25 different categories of emotion: admiration, adoration, appreciation of beauty, amusement, anger, anxiety, awe, awkwardness, boredom, calmness, confusion, craving, disgust, empathic pain, entrancement, excitement, fear, horror, interest, joy, nostalgia, relief, sadness, satisfaction, and surprise.
According to the Cannon-Bard theory of emotion, we feel emotions and experience physiological reactions such as sweating, trembling, and muscle tension simultaneously.
Another well-known physiological theory is the Cannon-Bard theory of emotion. Walter Cannon disagreed with the James-Lange theory of emotion on several different grounds. First, he suggested, people can experience physiological reactions linked to emotions without actually feeling those emotions. For example, your heart might race because you have been exercising, not because you are afraid.
Cannon also suggested that emotional responses occur much too quickly to be simply products of physical states. When you encounter a danger in the environment, you will often feel afraid before you start to experience the physical symptoms associated with fear, such as shaking hands, rapid breathing, and a racing heart.
Cannon and Bard’s theory suggests that the physical and psychological experience of emotion happens at the same time and that one does not cause the other.
Quantitative management is not a modern business idea but a management theory that came into existence after World War II. Business owners initially used it in Japan to pick up the pieces of the devastation caused by the war and started taking baby steps toward reconstruction. It focuses on the following elements of business operations:
Customer satisfaction
Business value enhancement
Empowerment of employees
Creating synergy among teams
Creating quality products
Preventing defects
Being responsible for quality
Focusing on continuous improvement
Leveraging statistical measurement
Remaining focused on the processes
Commitment to refinement and learning
Quantitative techniques in management as a collection of mathematical and statistical tools. They’re known by different names, such as management science or operation research. In modern business methods, statistical techniques are also viewed as a part of quantitative management techniques.
When appropriately used, quantitative approaches to management can become a powerful means of analysis, leading to effective decision-making. These techniques help resolve complex business problems by leveraging systematic and scientific methods.
The chapter consists of several aspects of behavioural finance and its foundations such as;
Overconfidence is the tendency for people to overestimate their knowledge, abilities, and the precision of their information, or to be overly sanguine (optimistic) of the future and their ability to control it. It is found that most people most of the time are overconfident is well documented by researchers in the psychology literature.
Overconfidence comes in different forms one of them is miscalibration, the tendency to believe that your knowledge is more precise (accuracy) than it really is.
Prospect theory assumes that losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses. Also known as the "loss-aversion" theory, the general concept is that if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen.
Emotion is a complex, subjective experience accompanied by biological and behavioral changes. Emotion involves feeling, thinking, activation of the nervous system, physiological changes, and behavioral changes such as facial expressions.
There are many different types of emotions that have an influence on how we live and interact with others. At times, it may seem like we are ruled by these emotions. The choices we make, the actions we take, and the perceptions we have are all influenced by the emotions we are experiencing at any given moment.
The adaptive market hypothesis (AMH) is an alternative economic theory that combines principles of the well-known and often controversial efficient market hypothesis (EMH) with behavioral finance. It was introduced to the world in 2004 by Massachusetts Institute of Technology (MIT) professor Andrew Lo.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
1. Behavioural Finance
Unit-IV
Behavioural Corporate Finance
Rational Managers with Irrational Investors Approach;
Behavioural Factors based on Capital Structure, Capital
Budgeting, Dividend Policy, Mergers and Acquisitions,
Agency Conflicts and Corporate Governance; Challenges
Agency Conflicts and Corporate Governance; Challenges
in Building a Psychologically Smart Organisation.
Prepared by
Mr. Dayananda Huded M.Com NET, KSET
Department of Studies in Commerce
Rani Channamma University, PG Centre, Jamkhandi-01
E-mail: dayanandch65@gmail.com
1
Mr. Dayananda Huded
2. Behavioural Corporate Finance
• Study of how owners and managers of publicly-traded companies make decisions that
affect the values of those companies.
• Examines effects of manager’s and investor’s psychological biases on firms corporate
finance decisions.
• Main psychological traps met are: confirmation bias, hindsight bias, herding behavior
conservatism, the role of affects, wishful thinking, opaque framing, representativeness
bias and overconfidence.
• “Real-world” view- Managers and investors may be irrational (Psychological Biases)
(“homo sapiens” view).
(“homo sapiens” view).
• Behavioural Corporate Finance: considers managerial irrationality/biases. Focus on
corporate finance decisions (investment appraisal, capital structure/dividend policy.
• How the personal traits of managers affect the decisions made in the firm, especially
financial decisions. We will see that the psychological qualities of individuals holding
management positions have a decisive effect on.
• For instance, their financing and capital budgeting decisions or their dividend policy.
It will also become clear that the psychological profile of each manager will provide
an explanation for the financial decisions made beyond the scope of the company and
its business sector.
2
Mr. Dayananda Huded
3. • Assumptions of Behavioural Corporate Finance
– Assumes irrational entrepreneurs or managers
– Postulates irrational investors and limited arbitrage.
• Corporate Dividend Policy
• Refers to the practice that management follows in making dividend
payout decisions.
• Have impact on financing decisions of the firm.
• Have impact on financing decisions of the firm.
• Dividends are payments made by a corporation to its shareholders.
• Concerned with taking decision regarding paying cash dividend in the
present or paying an increased dividend at a later stage
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4. Empirical Data on Dividend Presence
• M&M termed tendency of investors to be attracted to a certain type of dividend-
paying stocks a “dividend clientele effect”
• In a perfect market, each clientele is “as good as another”, thus dividend policy
remains irrelevant
• Dividends per share refers to the amount shareholders earn for each share,
calculated by dividing total dividend amount by total number of shares
outstanding
• Linter model is a basic model that incorporates the dominant determinants of
corporate dividend decisions
corporate dividend decisions
• If investors migrate to firms that pay the dividends that most closely match their
needs, no firm’s value should be affected by dividend policy
• If a firm rigidly follows the residual distribution policy, then distributions paid in
any given year can be expressed as follows
• Distributions = Net Income – Retained earnings needed to finance new
investments
• OR
• Distributions = Net Income – [(Target equity ratio) x (Total capital budget)]
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5. Timing of Good and Bad Corporate News Announcement
• Time for releasing all relevant information pertaining to a company that
may influence an investment decision
• An accurate timing of good and bad news announcement leads to
effective decision-making
• Principle of manager:
• 1. Assume that loose lips sink corporate ships
• 2. Consider honesty to be the best policy
• 3. Listen to individual’s stock prices
• 3. Listen to individual’s stock prices
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6. Rational Managers with Irrational Investors Approach
• The Rational Managers with Irrational Investors Approach
• This approach assumes that securities market arbitrage is imperfect, and thus that
prices can be too high or too low. Rational managers are assumed to perceive
mispricings, and to make decisions that may encourage respond to mispricing.
• Rational manager objectives in irrational market:
• 1. Fundamental value - Maximizing fundamental value has the usual ingredients.
• 2. Catering - Catering refers to decisions that aim at boosting stock price above
the level of intrinsic value.
• 3. Market timing - Market timing relates to the decision that aims at exploiting
• 3. Market timing - Market timing relates to the decision that aims at exploiting
temporary mispricing.
• Two Key Building Blocks:
• 1. Limits on arbitrage - Irrational investors impact prices because arbitrage is
limited.
• 2. Smart managers - Managers have the ability to detect when valuations are
wrong and they act on mispricing
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7. Behavioural Factors based on Capital Structure
• Capital structure is one of the most controversial issues in corporate
finance.
• There are several different approaches that constitute the theory of capital
structure; however none of them seems to prevail in practice so far. The
plethora of contradictive empirical evidence continuously raises questions
about the validity of each approach leading researchers to focus deeper in
the real factors that determine capital structure in practice.
• Examines the relationship between anchoring as a behavioural bias
• Examines the relationship between anchoring as a behavioural bias
exhibited by managers and their decisions on whether to issue debt or
equity.
• The argument put forward is derived from the market timing argument, in
which managers decide on whether to issue debt or equity based on their
perception of whether the value of the firm, given by its share price and
market capitalization, is overvalued or has peaked or is undervalued.
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8. • Investigate whether anchoring captured by a number of proxies including
marketto-book ratios, the proportion of shares sold off that are held by managers,
the exercising of stock options held by managers long before their expiration
dates, share repurchases, stock returns, bond yields, 52-week share price highs,
and share prices at last equity issue and last debt issue, sufficiently explains the
changing levels of debt or capital structure mix adopted by firms.
• Modigliani and Miller (1958) put forward the argument that a firm’s capital
structure does not affect the value of the firm, implying that debt policy is
irrelevant. They revised their view a few years later taking into account a tax
irrelevant. They revised their view a few years later taking into account a tax
environment and argued that because of interest tax shields, debt increases the
value of the firm, but up to a point. This point is regarded as the point at which
the cost of financial distress more than outweighs the benefits from interest tax
shields, and this gives us the Trade-off Theory (Modigliani and Miller, 1963).
• The first option is to use cash from retained earnings, and if this is not available
or becomes exhausted they will issue debt, and if they are unable to or find the
cost too high, they will issue equity as a last resort. This argument gives us the
Pecking Order Theory of Capital Structure.
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9. Behavioural Factors based on Capital Budgeting
• Overconfidence Bias will be influential here.
• Capital budgeting is the process by which firms determine how to invest
their capital. Included in this process are the decisions to invest in new
projects, reassess the amount of capital already invested in existing
projects, allocate and ration capital across divisions, and acquire other
firms. In essence, the capital budgeting process defines the set and size of
a firm’s real assets, which in turn generate the cash flows that ultimately
determine its profitability, value, and viability.
• In principle, a firm’s decision to invest in a new project should be made
according to whether the project increases the wealth of the firm’s
shareholders. For example, the net present value (NPV) rule specifies an
objective process by which firms can assess the value that new capital
investments are expected to create.
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10. • First, capital budgeting decisions can be complex. They often require projecting
cash flows for a wide range of uncertain outcomes. People are typically most
overconfident about such difficult problems.
• Capital budgeting decisions are not well suited for learning. As Kahneman and
Lovallo (1993, p. 18) note, learning occurs “when closely similar problems are
frequently encountered, especially if the outcomes of decisions are quickly
known and provide unequivocal feedback.” In most firms, managers infrequently
encounter major investment policy decisions, experience long delays before
learning the outcomes of projects, and usually receive noisy feedback.
learning the outcomes of projects, and usually receive noisy feedback.
Furthermore, managers often have difficulty rejecting the notion that every
situation is new in important ways, allowing them to ignore feedback from past
decisions altogether.
• Unsuccessful managers are less likely to retain their jobs and be promoted. Those
who succeed may become overconfident because of a self-attribution bias. Most
people overestimate the degree to which they are responsible for their own
success (Miller and Ross, 1975; Langer and Roth, 1975; Nisbett and Ross, 1980).
This self-attribution bias causes successful managers to become overconfident.
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11. • Managers may be more overconfident than the general population
because of a selection bias. Those who are overconfident and optimistic
about their prospects as managers are more likely to apply for these jobs.
Moreover, as Goel and Takor (2008) show, firms may endogenously
select and promote on the basis of overconfidence, as overconfident
individuals are more likely to have generated extremely good outcomes in
the past.
Overconfidence v/s Optimism
• The meaning of overconfidence is different from that of optimism, the
belief that favorable future events are more likely than they really are.
Researchers generally find that individuals are unrealistically optimistic
about future events. They expect good things to happen to them more
often than to their peers (Weinstein, 1980; Kunda, 1987). For example, Ito
(1990) reports that foreign exchange companies are more optimistic about
how exchange rate moves will affect their firm than how they will affect
others.
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12. Behavioural Factors based on Dividend Policy
• Factors:
• 1. First of all, it is easy to understand that the tax system may influence corporate
dividend policy.
• 2. Mental Accounting Bias, loss aversion, ambiguity and level of time
discounting are the main determinants of corporate dividend policy.
• 3. Signalling aspects (signaling theory): Signaling theory is the belief that
information on a company's financial health is not available to all parties in
a market at the same time.
• Signaling refers to the act of using insider information to initiate a trading
• Signaling refers to the act of using insider information to initiate a trading
position. It occurs when an insider releases crucial information about a company
that triggers the buying or selling of its stock by people who do not ordinarily
possess insider information.
• Signaling theory states that corporate financial decisions are signals sent by the
company's managers to Investors in order to shake up these asymmetries. These
signals are the cornerstone of financial communications policy.
• 4. Dividend payments also increase the risk of default by reducing the amount of
assets that is accessible for debt holders.
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13. • 5. Dividends are “a bird in the hand”, while retained gains only lead to
uncertain future earnings so that investors prefer dividends even if
retained gains and future earnings are completely reflected in current
stock prices. People thus tend to perceive dividends as a safety net which
is solely a psychological phenomenon, because selling a stock yields the
same monetary effect as dividend payments.
• 6. Mental accounts may not always be segregated.
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14. Behavioural Factors based on Mergers & Acquisition
• Mergers and acquisitions (M&A) are among the key strategic decisions
that firms make. But the problem is that they often result in failure and
impairment loss, with the fair value of the acquisition price becoming an
issue that poses the risk of overvaluation.
• The behavioral perspective regarding M&A is first proposed by Roll
(1986), who hypothesizes that overconfidence (or hubris) explains the
observed negative stock performance of acquirers.
• Biases causing overvaluation include overconfidence by managers; an
• Biases causing overvaluation include overconfidence by managers; an
escalation of bidding prices leading to winner’s curse; anchoring in
pricing; the endowment effect; and hindsight and confirmation biases.
• Corporate governance architecture can be designed to mitigate these
biases while preserving the positive aspects of overconfidence, such as its
promoting of productive and creative activities and coherent internal
management
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15. Reasons for Merger Failures
• Limited Owner Involvement
• Mis-valuation
• Poor Integration Process
• Cultural Integration Issues
• Large Required Capacity
• High Recovery Costs
• Negotiation Errors
• External Factors
• Assessment of Alternatives
• Backup Plan
• The Bottom Line: Business owners, advisors, and associated participants
should be vigilant (careful or cautious) about the possible pitfalls.
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16. Agency Conflicts (Behavioural Factors)
• Meaning: A principal-agent conflicts arises when there is a conflict of interest
between the agent and the principal, which typically occurs when the agent acts
solely in his/her own interests. In a principal-agent relationship, the principal is
the party that legally appoints the agent to make decisions and take actions on its
behalf.
• Agents are commonly engaged by principals due to different skill levels, different
employment positions, or restrictions on time and access. The agency problem
arises due to an issue with incentives and the presence of discretion in task
completion. An agent may be motivated to act in a manner that is not favorable
completion. An agent may be motivated to act in a manner that is not favorable
for the principal if the agent is presented with an incentive to act in this way.
• There can be various causes of agency problems. These causes differ from the
position of an individual in the company. However, the root cause of these
problems is the same in all mismatch or conflict of interests cases.
• When the agenda of the stockholder clashes with the other groups, the agency
problem will occur.
• In the case of employees, the reason would be the failure of stockholders to meet
employees’ expectations concerning salary, incentives, working hours, etc.
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17. • In the case of customers, the cause would be the failure of stockholders to meet
customers’ expectations like the sale of poor-quality goods, poor supply, high
pricing, etc.
• In the case of management, the causes of agency problems could be the
misalignment of goals, separation of ownership and control, etc.
• The main reasons for the principal-agent problem are conflicts of interests
between two parties and the asymmetric information between them (agents tend
to possess more information than principals).
• The principal-agent problem generally results in agency costs that the principal
• The principal-agent problem generally results in agency costs that the principal
should bear. Because agents can act in their interests at the principals’ expense,
the principal-agent problem is an example of a moral hazard.
• Managers and shareholders have different aims. The objective of shareholders is
to maximise their wealth, which are high dividends and high share price.
However, managers do not always perform to maximise shareholders’ wealth
since they will enjoy very little of that wealth. Rather, they want to maximize
their salary/income, fringe benefits and job security
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18. • Managers favour lower risk projects and lower debts as high risk and debts
increase the risk of bankruptcy and losses (Jerzemowska, M., 2006). On the other
hand shareholders prefer risky projects that involve high cash-inflows and high
returns and they encourage managers to finance the project by borrowing
additional debts.
• Sources of conflicts between shareholders and creditors
• 1. High dividend pay-out is a major source of conflict between them
• Shareholders always try to maximize their wealth by asking for high dividend.
While the dividend of shareholders increases, interest paid to creditors remains
the same. Subsequently, high dividend increases the market value of shares but
the same. Subsequently, high dividend increases the market value of shares but
decreases the market value of bonds. Hence, shareholder wealth maximization
causes a decrease in creditors’ wealth.
• 2. Conflicts arise through the choice of projects
• Shareholders try to cause the company to implement risky projects with high
returns prospects. However, creditors prefer low risks project/investment
whereby the probability of success and loan repayment are higher. If the risky
project is successful, shareholders will benefit from higher dividends as the
business performance improves while creditors do not get to share that they only
receive fixed interest.
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19. • Types
• There are two main types of agency relationships that exist in a
firm, namely,
• Between shareholders and mangers
• Between shareholders and creditors
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20. Corporate Governance
• Corporate governance is concerned about the ways in which investors assure
themselves of getting a return on their investment, on one hand, and is focus on
motivating managers to increase the company profit, on the other hand.
• Corporate governance emerges from the interaction between managers and
investors.
• Managers are often more likely to invest the extra cash-flow or profit than to
return it to shareholders. But, both managers and investors are lees then fully
rational.
• Sometimes their behavior is based on cognitive psychology.
• Sometimes their behavior is based on cognitive psychology.
• In this context, we are dealing with two problems: managerial biases and
irrational investors.
• Managerial biases focus on the illusion of optimism and overconfidence.
• Irrational investors can produce overreaction to something and under-reaction to
other thing.
• We try to emphasize that both managerial biases and irrational investors will
affect corporate governance and furthermore will drive to company distress (even
bankruptcy) if decisions are more based on cognitive psychology than on rational
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21. • Corporate governance and corporate finance are about managers,
investors and shareholders.
• Sometimes, they act in an irrational way based on their own perception or
on their own biases.
• Managers may be too optimistic when assessing the profitability of their
investment, investors may have an irrational behavior that can produce a
mispricing and shareholders are too optimistic about the value of their
share and are confronting with disposition effect.
share and are confronting with disposition effect.
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22. • More than that, managers have to find different ways to maximize the
wealth of the shareholders because this represents the goals of businesses,
on one hand, and shareholders have to find ways to motivate managers to
rich their goals, on the other hand.
• In order to manage this kind of conflict, in nowadays, corporate
governance is based on behavioral finance that according to Pompian
(2011) “examines behavior or biases of individual investors that
(2011) “examines behavior or biases of individual investors that
distinguish them from the rational actors envisioned in classical economic
theory”.
• Corporate governance emerges from the interaction between managers
and investors.
• This implies an agency theory perspective in order to balance and manage
the conflict of interest between the two parties.
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23. Managerial Biases and Irrational Investors
• First, managerial optimism predicts the existence of biased cash flow
forecasts.
• Second, managerial optimism predicts pecking order capital structure
preferences.
• Third, managerial optimism predicts efforts to hedge corporate cash flow,
even in the absence of significant asymmetric information, by generating
a false, but perceived wedge between the internal and external cost of
funds.
funds.
• Fourth, managerial optimism predicts takeover resistance”.
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24. Challenges in Building a Psychological Smart Organisation
1) Agency conflicts and lack of collaboration.
2) Behavioural biases
3) Individual differences
4) Difference of opinion
5) Irrational decision based on poor performance
6) Maintaining hide and secrecy among managers or agents
7) Lack of incentives to the managers
8) Lack of dividends to the shareholders
8) Lack of dividends to the shareholders
9) Resistance to change
10) Lack of tolerance in accepting feedback from customers
11) Lack of diversity
12) Wide span of control
13) Restrictions and tough rules
14) Absence of successful innovations
15) Lack of employee engagement and team innovation.
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25. Strategies for Building a Psychological Smart Organisation
• 1. Focus on performance: First, emphasize what most executives want:
performance. Building a psychologically smart environment starts with
shifting the narrative of the intervention from culture change or interpersonal
skills in order to make the case that the quality and candor of conversation
matters for results.
• 2. Train both individuals and teams: Per’s experience as a basketball
player and coach revealed that winning teams undergo two kinds of training:
individual skills (drilling, shooting) and team practice (complex games that
involve real-time coordination using these skills, along with decisions about
involve real-time coordination using these skills, along with decisions about
when to pass, shoot, or dribble). The same is true for management teams.
Individual executives must learn and practice the skills of perspective taking
and inquiry that facilitate candid sharing of ideas and concerns.
• 3. Incorporate visualization: Visualization is used in various settings
ranging from athletes seeking to break a world record to therapists helping
individuals alter troubling behaviors.
• 4. Demonstrate concern for team members as people
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26. • 5. Provide multiple ways for employees to share their thoughts (Employee
participation)
• 6. Show value and appreciation for ideas
• 7. Explain reasons for change
• 8. Increases the amount team members learn from mistakes
• 9. Boosts employee engagement & Improves team innovation
• 10. Build diversity
• 11. Foster Mutual Understanding of Roles and Responsibilities
• 11. Foster Mutual Understanding of Roles and Responsibilities
• 12. Create an Environment Where Team Members Feel They Can Speak Up and
Be Heard—Without Personal Judgment or Attacks
• 13. Everyone deserves to feel like they belong at work; the new-and-
improved Inclusive Behaviors Inventory is an easy-to-use assessment that
allows you to develop your own inclusion profile and get simple steps for
improvement.
• 14. Provide Your Team With Tools That Promote Ongoing Learning, Discussion,
and Engagement
• 15. Democratize functions
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