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International Finance and Responsible Financial Management Assignment Sample

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International Finance and Responsible Financial Management Assignment

Academic Essay: Task 1

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Firms usually raise capital via equity in order to make an investment in asset that produces cash flow for future on which shareholder have the claim. Such flows are being paid in the form of dividend or is being retained for reinvestment is a matter of great importance to both shareholder as well as the firm. Dividend is usually payment from earnings that the company pays to the investors (Chowdhury, Khan & Dhar, 2021). The amount of payout of dividend depends on the dividend policy that the firm follows and which also have an impact on shareholders wealth as the current payment of dividend also influences the shareholders wealth. Some firms are of the believe that the amount of profit earned by the earned by the company should be reinvested for further growth of the company leading to increase in shareholders wealth and dividend should be paid only when there is no viable investment (Gelter & Puaschunder, 2021). Lately, world has face remarkable affect by the global COVID-19 Pandemic as a result of which business round the world have endured the hardship of financial losses that have an impact on dividend policy for the companies round the globe.

Investors usually shareholders are more focused on evading the risk relating to likelihood of failure to get the turnover on their investment. Disbursement of dividend eliminate the probability of risk to such investor but retaining earnings makes it risky. Usually, investors are more deliberate to have a higher value of shares along with up-to-date dividend. The dividend policy of global companies has been impacted due COVID-19 Pandemic. Many people who are retired or are fully depended on pension along with steady flow of dividend have faced the crisis as the companies due to COVID-19 Pandemic were facing difficulties to pay the dividend as per their prevalent policies. There is a long list of companies in all countries who have abandoned their target for the year and suspended the dividend payment. Companies like Rolls-Royce have also been hit hard by the restrictions implied on global air travel by the government to control COVID-19 Pandemic. Due to the impact of COVID-19 Pandemic it was the first time that the company since privatization in 1987 was unable to pay the dividend. Flying hours for far reaching aircraft such as Airbus A330 and A350 and Boeing' 787 Dreamliner had fallen by 25% in first quarter and by half in March as compared to previous year and with time condition only worsened during coming months (Griffith, Levell & Stroud, 2020). According to Financial Times dividends which are core source of income for charities, foundations and pension funds fell by fifth to $382.2billion in second quarter of 2020 which appears to be the biggest fall since Janus Henderson Investment Group commenced its universal share index in 2009.It also observed that the companies in the last three decades have been moving towards reimbursing their income to stakeholders in the form of dividend and buyback of stock leading to satisfaction of investors. However, due to the impact of COVID-19 Pandemic most companies were required to curtail their expenditure to preserve cash and reinforce financial statement in order to sustain financial losses. Hence COVID-19 Pandemic have triggered the impact dividend decision making of companies round the world. (Mason & Hruskova, 2021)

According to Financial Times due to COVID-19 Pandemic industries were pressurized by both government as well as investors to cut off the dividend. Many governments attached strings in form of packages so as to provide relief to the companies. Many changes were made so as to reduce the impact of COVID-19 Pandemic. Great emphasis was given in order to prioritize maintaining of employment, maintaining supplier/customer relation, health and safety, to give paid leave and exercise financial prudence to pay dividend. Financial Times further indicates that new corporate climate and gaining popularity of environmental, social and governance investing model may lead to cut off of dividend so as to provide fair wages to the employees and in order to maintain employment. Despite of various efforts of the government there was a great impact in employment and wage payment to the workers. One of such instances is that of Britain's largest regional news group Reach which discharge one-fifth of its staff and asked the remaining to accept a pay-cut in order to face COVID-19 Pandemic situation. The board and most senior editorial and management team would take 20% pay-cut and the salary of the remaining staff would fall by 10% as long as it does not lead anyone below UK living wage rate (Kilincarslan & Demiralay, 2021). Such precautions were taken in order to face the difficult situation as the duration and long-term impact of the crisis is unknown and such proactive measures were taken in order to protect the jobs and the business in long run.

However, some US Companies who were laying off their workers due to COVID-19 Pandemic but still buying back their shares and paying dividend were drawing criticism from pension fund advisers, labor union, corporate governance experts and lawmakers. Companies like McDonald's Corporation, General Motors Co. all laid off their staffs or slashed their salaries while maintain their payouts or cut off their hours. Royal Caribbean which due to COVID-19 Pandemic borrowed to boost its liquidity to more than $3.6billion but it had to lay off its contract workers to face the crisis. Carnival Corporation also laid off its contract workers but it also had to suspend its dividend and buyback as it raised more than $6billion in capital market to meet COVID-19 Pandemic (Kilincarslan & Demiralay, 2021). While the US companies were criticized for maintaining investor payout some of the companies also received packages from US government to suspend share buyback and efforts were also made to cope with the unemployment rate as it was skyrocketing as the company claims that job cut-off was necessary to offset a plunge in revenue. Workers at franchised McDonald's were getting fewer shifts since dining area was closed leaving only carryout and drive through services open. Many workers were unable to pay off their rents as their shift hours reduced to a great extent. General Motors halted their production in North America and reduced cash pay to the salaried workers by 20%. The company's main focus for near future was to protect the health of their employees and customers and to ensure to have ample liquidity for different probable scenarios in order to keep the company running and stable in long run. (Mason & Hruskova, 2021).

Some believes in the theory that higher dividend pay-out announcement by the company signals strong indication about the shining prospects of the company. The one who believes in such a theory have faith that managers have more information about the firm's cash flow than other stakeholders outside the firm and hence to inform higher value of the firm they have incentive to convey higher dividend payout ratio. Many companies have faced various difficulties and were unable to pay dividend or taken various precautions in order to face the difficulties of COVID-19 Pandemic in order to make the companies survive in long run. America's biggest banks have so far staunchly defended their plans to continue paying dividends, but in annual letter to shareholder Mr. Dimon said JP Morgan was "not immune" to the coronavirus crisis and is exposed to "billions of dollars of additional credit losses" as it lends to businesses and individuals in need (Kilincarslan & Demiralay, 2021)

The amount of dividend to be disbursed by the company depends upon the profitability of the company. Internal profitability of a firm gives a platform to compare alternative return that can be earned elsewhere to retained earnings. While determining the profitability a company is also required to consider corporate tax polices of their own jurisdiction while preparing their dividend policy. Higher the tax less the profit available with the company to be able to disburse to the shareholder in the form of dividend.

Finally, in order to conclude, while determining the amount of dividend which is disbursed by the company's various factors is required to be considered ranging from profitability earned by the company, amount to be retained for shareholders wealth along with considering dividend payout ratio to other stakeholders that are available. Different theories are available or are considered that provide various point of view regarding relevance and irrelevance of disbursing dividends towards the creation of wealth of shareholders. Many companies round the globe to cope with the crisis of Covis-19 Pandemic have taken various actions such as to forgone payment of dividend, reducing employment or cut off of their salaries, postpone buyback of shares and many such steps in order to provide liquidity to the company and to make it prone to face various difficult situation. However, there are various companies who are able to pay dividend in spite of facing such difficult situation depending upon the amount of profit earned by the company, various government packages so provided as well as level of satisfaction to be provided to the shareholder. One can say that dividend policy so followed by the company determines to a great extent and have a considerable effect on the creation of shareholders' wealth.

References

Chowdhury, E. K., Khan, I. I., & Dhar, B. K. (2021). Catastrophic impact of COVID?19 on the global stock markets and economic activities. Business and Society Review.

Gelter, M., & Puaschunder, J. M. (2021). COVID-19 and comparative corporate governance. Fordham Law Legal Studies Research Paper, (3772965).

Griffith, R., Levell, P., & Stroud, R. (2020). The Impact of COVID?19 on Share Prices in the UK. Fiscal Studies, 41(2), 363-369.

Kilincarslan, E., & Demiralay, S. (2021). Dividend policies of travel and leisure firms in the UK. International Journal of Accounting & Information Management.

Mason, C., & Hruskova, M. (2021). The impact of COVID-19 on entrepreneurial ecosystems. In Productivity and the Pandemic. Edward Elgar Publishing. 

Blog Appendices

Blog 1: Financial Investment

Financial investment refers to acquiring an asset or any other instrument or property with the motive of growth or appreciation of income in future to create wealth. The act of investment refers to generating income with increased value over a period of time. It helps in overcoming the problem of inflation and have the potential for healthy long-term return. Planning plays a vital role in all types of financial investment as careful analysis, focused approach, fundamental concepts are mandatory before investment for analysis of risk and return by exploring all the source investment plan in the available market (Atmaca & Karada?, 2020). Detail study of pros and cons of each plan will lead to maximization of return, minimization of risk and provides stability of income. Management of working capital, capital structure, management of retained earnings, management of liquidity, portfolio management are some of the major role of finance manager. Diversification will help in achieving long term goal as it would help us to bear short term fluctuation. Financial planning will lead to create contingency fund, create retirement corpus, utilization of money in a best possible manner (Campbell, 2018). Financial investment helps in managing individual portfolio pattern both in short as well as long term. Some of the types of financial investment are as follows:

Corporate bonds-It is type of debt security issued by companies and government. It is issued to raise funds by borrowing money and selling to investors. They are less risky than equity stock, real estate as it provides fixed rate of interest and have higher growth potential.

Government bonds-They are also known as gilts. It is a type of debt-based instrument. Government use this fund to invest in new projects, infrastructure and investor gets a fixed rate of return.

Hedge funds- They are alternative source of investment that helps in raising capital from individual. It reduces volatility negates risk in order to preserve capital and ensure positive return under all circumstances (Cooremans, 2021). They are designed to invest in equity market. It helps in providing liquidity and improving corporate governance through better shareholder rights. It helps in creating healthy saving environment by proving strong framework to non-banking lenders.

Exchange traded funds - They provide diversified disclosure in a single security which can be traded as stock. MSCI United Kingdom index fund (EWU) is one of the most popular traded funds in United Kingdom. Some popular ETF are SPDR DJ STOXX 50 ETF, BLDRS Developed Markets 100 ADR INDEX (ADRD).

Financial Investment are made so as to provide desired rate of return in future. Financial investment is one of the mainstream investments giving favorable circumstances to many speculators. It helps in advanced portfolio management, administration of an investment portfolio, dividend reinvestment and risk reduction. Though there are some major highlights to be remembered before investment is made so as to be aware of management abuses, tax inefficiency, poor trade execution volatile investment brokerage commission as it reduces profit margin. As financial policy comprises of financial resource, financial tool and the financial goal to be achieved. Financial management should ensure that enough fund is available at right time to meet the needs of the organization (Cooremans, 2021).

Investment analysis leads to research and evaluation of a security to predict future performance and regulate its suitability to the investor. Financial analysis leads to identify the opportunity and calculate the present value of future cash flow and compare the present value with the cost of investment. It will help in determining project profitability, risk and breakeven characteristics (Campbell, 2018).

Financial investment objective is to preserve the capital in order to achieve the goals to be attained the bear market than to lose in the market. The identification and selection of good investment project is the key element in developing sustainable future which will help in getting long term profitability (HC & Gusaptono, 2020). Thus, financial management emphasis both on conceptual and analytical aspect of financial investment decision which helps in expansion and diversification of business. It leads to maximization of profit, minimization of financial charges, maximization of wealth leading to survival and growth. Hence financial sectors which comprises of financial market, financial intermediaries and financial products helps in transfer of financial resources from net savers to net borrower leading to an adequate flow of fund.

References

Atmaca, S., & Karada?, H. A. (2020). Decision making on financial investment in Turkey by using ARDL long-term coefficients and AHP. Financial Innovation6(1), 1-22.

Campbell, R. (2018). Art as a financial investment. The Journal of Alternative Investments10(4), 64-81.

Cooremans, C. (2021). Make it strategic! Financial investment logic is not enough. Energy Efficiency4(4), 473-492.

HC, R., & Gusaptono, R. H. (2020). The Impact of Financial Literacy on Investment Decisions Between Saving and Credit: Studies on Sharia Bank Customers in the Special Region of Yogyakarta. Journal of Economics and Business3(4) 

Blog 2: Core Concept of Corporate Finance

Financial activities which help in running business is known as Corporate Finance. Finance is the life blood of any business weather be it any small or big enterprise. Corporate Finance includes Planning the source of finance, raising it, investing, monitoring of financial activities for meeting the needs and goals of the organization. The main objective for any enterprise is the maximizing the value of the organization with the minimum risk and maximum utilization of resource (Baker, Kumar & Pattnaik, 2020). It plays a major role at the time of startup, expansion, merger, raising capital in form of equity, debt, or other types of securities for restructuring of business. It helps in decision making for future course of action ensuring economic viability and sound profitability.

Major principle of corporate finance is where the money is to be invested, Financial and Dividend decisions which helps in maximizing shareholder value, returns on investment by short term, long term strategy that aid the company in reaching its goal. Investment principle assist in allocation of resources in an efficient manner, which not only helps in generating revenue but also savings for the future (B?ach, 2020). It encompasses working capital i.e., credit period allowed to the purchaser, corporate governance, risk management, capital budgeting, financial management acting as a tool to prioritize and distribute resources balancing risk and profitability. Investment and budgeting help in generating highest risk adjusted returns, through financial analysis.

Financial principle helps the business to ensure right amount of capital and right proportionate of debt and equity funds. A balance between sources of fund will lead to growth of the organization. As increase in debt will lead to increase in risk of default in repayment while increase in equity will lead to dilute earnings of original investor. Hence corporate finance experts help to optimize organization capital structure by minimum weighted average cost of capital to maximize its value. The Capital Structure of the company is blend of equity and debt (Gillan, Koch & Starks, 2021). Debt being the cheaper source of finance is included in capital structure, however inclusion of more debt will provide increase amount of tax benefit on interest paid but would also lead to financial risk as there would be a large amount of fixed interest outflow. Therefore, there may be a situation where interest exceeds earnings before interest and tax leading the firm to a situation of financial distress. In order to avoid this situation a tradeoff should be maintained leading to both enjoyment of tax benefit and cost of financial stress too. The time value of money coupled with exchange rate fluctuation makes the decision making more complex as they compelled the decision maker to come to conclusion using various sophisticated management technique like profitability theory, capital rationing, and other sensitive analysis to overcome the situation.

Dividend is the payout of earning of a company to its shareholders. It is a point of focus for every organization because it is directly linked with future investment opportunities, resource allocation, and financing decision (Rissy, 2021). Generally, an increase in dividend carries a positive signal and has positive effect on the price of share whereas decrease in dividend carries negative a signal leading to decrease the price of share. Hence dividend policy is strictly a financial decision. Though large shareholders are not interested in payment of dividend as it causes higher tax burden on the company, they believe that if it is further invested it will lead to capital appreciation, growth of the company which in turn depends on retention of earnings. Thus, it can be said that lower the dividend, higher the retention implying higher growth and market value of share (Gillan, Koch & Starks, 2021).

Through wealth maximization of an organization, the internal generation of fund are not being paid out by way of dividend or issue of bonus share, they are further utilized by the company in their portfolio management as it will maximize the value of shares by higher rate of return (Sertsios, 2020). Financial Management emphasis both on conceptual and analytical aspects of financial decision. Finance manager has to strike a balance between risk and return associated with in order to maximize the market value of firm. If there is an increase in return it will lead to increase in risk hence, they are directly proportionate to each other.

References

Baker, H. K., Kumar, S., & Pattnaik, D. (2020). Twenty-five years of the journal of corporate finance: a scientometric analysis. Journal of Corporate Finance, 101572.

B?ach, J. (2020). Barriers to Financial Innovation—Corporate Finance Perspective. Journal of

Gillan, S. L., Koch, A., & Starks, L. T. (2021). Firms and social responsibility: A review of ESG and CSR research in corporate finance. Journal of Corporate Finance, 101889.

Rissy, Y. Y. W. (2021). Reconceptualizing the Concept of Corporate Governance and its Goals in People's Credit Banks in Indonesia. Yuridika36(1), 263-280.

Sertsios, G. (2020). Corporate finance, industrial organization, and organizational economics. Journal of Corporate Finance64, 101680.

Blog 3: Financial Ethics

Corporate governance is not only the conduct, behavior which is being seen outwardly but also the soul and core, an internalized value that a corporation and its management follows higher moral, mental harmony, spiritual seeking for honesty, goodness, unity leads to the consciousness. Moreover, corrupt and profligate are all result of consciousness. The scam of Boiler room schemes, phishing scam and smashing scam are also the result of corresponding consequences predominantly by self-regard, material needs and luxurious desires.

Financial ethics includes act with integrity and honesty and avoidance of contradictory interest in professional relationship. The concept of justice and equity are implicit to each other in ethics. Equitable and fair treatment is its primary objective. An organization must have a balance between their desires to maximize return against the demand of shareholders. The code of ethics includes responsibility, caring, fairness, respect, trustworthiness, citizenship as desirable value of any organization (Adegbite, Adegbite, & Ige-Olaobaju, 2021). It further lays importance to company value, accurate along with timely information in documents and reports that company present before government agency, commission and other department .Compliance of government laws, rules and regulation include insider trading which should be prevented, maintaining confidentiality of administrative and business affairs, prompt disclosure of violation of code to the required person standards of organization policy for the organization's supplier, customer, communities, competitors, shareholders, associate, partner, employees. Board should review the adequacy of the business annually. Code of business also known as code of conduct act as a guide action for committee of Directors and Senior management of the organization (Mews & Abraham, 2017).

Some of the principles or guidelines which have been and which are identified by the company are avoidance of unlawful agreement, collection of information, content only from reliable sources, free and fair competition, avoidance of receiving monetary or offering other in documents, disciplinary action against guilty person. Few ethical issues that employees and companies are confronted includes - in accounting (misleading financial statement, window dressing), fake reimbursement, executive compensation, insider trading, frauds leading to manipulation, deceive of financial market, kickback, bribery, over billing of facilitation payment and other miscellaneous expenses (Prayogo & Afrizal, 2021).

An organization should disclose complete procedure and practice adopted by them to promote ethical behavior. Representation by the top management that ethical breaches are been investigated, reported and resolved. Inclusion of ethics related issue in employee performance, their evaluation and compensation to the management. An organization must be fair and not discriminate on the basis of age, caste, disability, national origin, religion. The value of tolerance, equality, respect for other and principle of equal justice should not be neglected. An organization should practice integrity, confidentiality and trustworthy in inter personal relationships (Sun, Dutta Zhu & Ren, 2021). Due to globalization, enhancement in role of media and technology there has been increase in demand for reporting, accountability and transparency to a greater extent. This led to ethical decision-making framework. Requirement of highly competitive global market is value based ethics and management that the management has to apply in its governance. It would enable manifest healthy relationship along with internal customer and merchandising relationship with external customer. To ensure right and healthy ethical climate, combination of both structure and spirit is required.

Corporate ethics is required to lay the importance of social development, sustainability, stakeholder and customer satisfaction. It reconciles various section of society such as shareholder, worker, distributors, supplier, customer, competitors and governance hence leading to a better relation between business and society. Ethical performance is long term interest of any organization. It helps to gain competitive advantage and goodwill for itself (Prayogo & Afrizal, 2021). A company that coheres to ethical behavior values, take care of its employees is always rewarded by loyal, devoted and committed employees. Without ethics in finance, confidence to participate, trust in financial system would disappear. Thus, ethics in finance could not only embrace socially responsible in global developing world but also create the importance of treating retail clients fairly and provide moral principle in the capital market. A strong ethic-based culture helps in promoting ethical behavior, leads to foster trust, robust global market and ultimate benefit to the society.

References

Adegbite, O. E., Adegbite, O. R., & Ige-Olaobaju, A. Y. (2021). Financial Ethics. Financial and Managerial Aspects in Human Resource Management: A Practical Guide, Emerald Publishing Limited, 39-50.

Mews, C. J., & Abraham, I. (2017). Usury and just compensation: Religious and financial ethics in historical perspective. Journal of Business Ethics72(1), 1-15.

Prayogo, I., & Afrizal, T. (2021). Perceptions of Educators, Accounting Students and Accountants Public Accountant against Ethics of Financial Statement Preparation (Studies at University and KAP in Semarang). Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences4(1), 89-101.

Sun, F., Dutta, S., Zhu, P., & Ren, W. (2021). Female insiders' ethics and trading profitability. International Review of Financial Analysis, 101710.

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