Business Intelligence Essay Example | Topics and Well Written Essays - 2000 words

Business Intelligence - Essay Example to make most extreme use of the data close by to create at the most extreme limit. Besides, with persistent progressions in the business condition, chiefs are confronting expanded worry to build up their validity (Khan and Quadri, 2012). With this respect, the paper means to build up the details that are related with the requirements of creating business insight. In correspondence to the above expressed realities, the exposition additionally centers around building up a top to bottom comprehension towards the difficulties that may manifest over the span of usage and aides in looking after dashboards. The exposition expects to build up a superior comprehension towards keeping up dashboards and incorporates the administration of various difficulties that could surface during the administration of various needs. Overseeing business knowledge has been of intricate and dynamic nature that forces a test for upgrading the situations that are pervasive inside the social space. In this regard, the general administration of the business has been forcing gigantic degree of intricacy that could start various requirements of the framework and upgrade viability of the directors to address with the issues of the business. Dashboards help in building up a superior understanding towards the issues and upgrade the capacity to meet with the edifices that are related with the business activities. Dashboards empower a business to screen the requirements of overseeing business insight and increment the viability through effective advancement of the business activities (Bara and et. al., 2009). With the expanding measure of complexities, there has been a gigantic move inside the administration of the different business procedures. This could be recognizable that administration of data framework has been a muddl ed activity for the individuals who are dealing with the different methodologies inside the framework for upgrading the viability of the business (Khan and Quadri, 2012). The

Aristotles Tragic Hero in Shakespeares Macbeth Essay examples -- Mac

Aristotle's Tragic Hero in Macbeth   â â Aristotle and Shakespeare lived ages separated, however Aristotle had an extraordinary effect on Shakespeare's plays. In Shakespeare’s sad play, Macbeth, the character of Macbeth is reliable with Aristotle's meaning of the heartbreaking saint.  Aristotle's grievous saint is a man who is portrayed by acceptable and abhorrent. He is a blend of good qualities and awful attributes. For instance, Macbeth was a fair Thane of Glamis. He was a valiant warrior who had ensured his nation of Scotland well, yet he needed to be best. His vaulting aspiration made him execute King Duncan which wound up in his fall.  Aristotle's appalling legend has a heartbreaking defect, or harmatia, that is the reason for the destruction. Macbeth's vaulting aspiration, however it is the thing that carries him to his stature of intensity, it is likewise what drives him to his ruin. Vaulting Ambition is Macbeth's just defect; it debilitates him to accomplish his most extreme objectives and powers him to confront his destiny. Without this aspiration, however, Macbeth could never have had the option to accomplish his capacity as King of Scotland or have had the option to complete his abhorrent deeds. In these occurrences, desire helped Macbeth do what he needed to do. Be that as it may, therefore, Macbeth's desire has another face and is the thing that drives him to his lamentable destruction. Had he not been so wrapped with turning out to be King and staying ground-breaking, he would not have kept on executing honest individuals so as to keep his position. It was a result of these killings and his oppressive disposition that made him be ousted and slaughtered himself.   â â Macbeth, toward the start of the play is by all accounts an exceptionally honorable individual. He is described as being extremely faithful and noteworthy. He takes on in the conflict against ... ...o his disastrous demise. Had it not been for Macbeth's fixation on power, he would have had the option to stay ground-breaking, however it is a direct result of his desire that makes him become less amazing and leads him to his ruin.  Works Cited and Consulted:  Brooke, Nicholas, ed.â Macbeth. Oxford: The Oxford University Press. 1990.  Coursen, H.R. Macbeth-A Guide to the Play. London: Greenwood Press.1997.  Elloway, David. Disastrous Ambition in Macbeth Macmillan Education Limited. 1985.  Nostbakken, Faith. Getting Macbeth. USA: Greenwood Press. 1997.  Shakespeare, William.â Tragedy of Macbeth . Ed. Barbara Mowat and Paulâ â Warstine. New York: Washington Press, 1992.â â â  Slethaug, Gordon. Talk Notes for ENGL1007. Internet posting. November 2000. <http://ws.bowiestate.edu/files/1996/0807.html>. Â

Kemal Dervis to Teach at SIPA COLUMBIA UNIVERSITY - SIPA Admissions Blog

Kemal Dervis to Teach at SIPA COLUMBIA UNIVERSITY - SIPA Admissions Blog Kemal Dervis will teach a two semester course on global economic governance at SIPA, following the conclusion of his tenure as head of the United Nations Development Programme (UNDP). Dervis will co-teach with José Antonio Ocampo and will be a fellow of the Committee on Global Thought during the 2009 â€" 2010 academic year. Prior to his appointment with the UNDP, Dervis was a member of the Turkish Parliament (2002 â€" 2005), Minister of Economic Affairs of Turkey (2001 â€" 2002) and Vice-President of the World Bank (1996 â€" 2001). Photo credit to UNDP.

Zara Is Known For One Of The Smartest Company - 1314 Words

Zara is known for one of the smartest company to sustain a breakthrough marketing strategies and efforts. They have been successful in the fashion industry for over many years and now a day, still continue to earn more accomplishment to become the â€Å"Spanish successful story†. Zara, the world largest clothing retailer brand that is part of the Inditex multinational clothing company which was created by Amancio Ortega and Rosalia Mera (Inditex, brands). They are based in the northwest of Spain. Currently, Zara has a total of 2,000 stores in major cities around 88 different countries (Inditex). They are acclaimed as a fast fashion company in the industry with more than two hundred professional designers within the creative teams. Zara’s products are diversification strategy, include men’s and women’s apparels and accessories that keep up with the current fashion trend (Inditex). Working in the fast fashion industry, Zara has developed a unique fast return strategy of production in order to keep up with the current trend and maintain the excitement for the customers. Also, going to a market-oriented strategy, they are trying to focus on satisfy their customer wants and needs. Thus, their value chain process is very unique. The new products come in the store twice a week, which is an incredibly short amount of time. However, by replacing with small and frequent merchandise, they are able to keep the store fresh and deficient (Greg, 2). Moreover, it also benefits the retailer inShow MoreRelatedLearning from the Fashion Industry: a Structured Literature Review39302 Words   |  158 Pagespoints which can derive from the fashion industry regarding supply chain management solutions. Manufacturing, distribution and marketing issues that enable a more robust analysis of the sector are investigated. A review of business models used by companies in the fashion indus try is conducted to gain insights into the way that fashion firms manage demand. An extensive review of the literature reveals that the fashion industry is marketorientated and characterised by short life cycle products and low

Buy Research Paper Writing Service Fundamentals Explained

Buy Research Paper Writing Service Fundamentals Explained Timely delivery of work when writing an essay is necessary to a client because it enables the client to assess their work, and get it corrected before delivery. Each assignment is created especially for each client, on their own demand. This kind of academic task usually makes students panic, which might bring about a delayed submission and tons of anxieties. In such conditions, students start looking for reliable custom writing services. The Demise of Buy Research Paper Writing Service Who knew essay writing may be so tough. So should you need to employ college essay writer online, we're just the people that you will need to contact. If you're looking for top essay writing companies, try out the mentioned above. Skilled essay writing crew and expert research raper service team will enable you to receive well-written papers that might help you to receive top grades. Writing a research paper could possibly be an in timidating chore. If your essay is lengthy or it's a dissertation, you must plan tiny drafts of paragraphs and try to concentrate on each paragraph. You will also have to use all of your writer skills to shape the paper and make it appear professional and readable. The Benefits of Buy Research Paper Writing Service Essays are normally not very long, therefore it's no real surprise that teachers would assign a great deal of them to write. Currently there are many on-line essay writing companies based in numerous regions of earth. The students don't comprehend the role of writing such crucial paper and wind up making silly errors that lessen its worth and gets rid of the chance of acquiring good marks. Many students have fallen trap of organizations which provide plagiarized and bad quality on-line essay writing. A dependable research paper writing services provider should enable clients to become plagiarism free customized research papers online every one of the times. Ther e are lots of websites where it's possible to discover a research paper. Do not be worried about the deadlines when you obtain a research paper online from PaperWritten.com. Don't worry about the deadlines when you obtain a research paper online from PaperWritten.com. Essay writing software is also necessary because it assists in writing custom essays and a lot different papers. Writing of article critique isn't one of the basic tasks that you are perhaps thinking. Writing research paper thesis is a struggle. If you lack technical writing skills then it's near impossible to compose a research paper. The Benefits of Buy Research Paper Writing Service For this reason, you can feel sure your paper is going to be custom written with an expert with the right qualification. You may want to discover more here. You're along side given a totally free plagiarism report for a sign of excellent service and original on-line essay. Just have a peek at our price calculator to learn w hat your perfect price for the paper is! The expense of buy essays will be contingent on the deadline and volume of work. It's possible to also do some studying to learn more about the points to discuss to be able to present a logical and compelling review. Anyway, you'll certainly like our price policy. The Definitive Approach for Buy Research Paper Writing Service Work is performed under various Subjects each headed by means of a Referee. An essay means research type of work that's regularly required in the majority of subjects and are written on a number of topics, both in high cheap and in universities. Writing an essay is easily the most popular mode of informal and continuous assessment used in the majority of institutions. Developing a first-class excellent essay has ever been a difficult undertaking for many students since they have many academic workloads. The Definitive Strategy for Buy Research Paper Writing Service The empty screen or term paper before you whil e the summary essay has become the most complicated portion of the procedure. If you understand that you're with a great book beach descriptive essay. If you realize that you are with a superb book beach descriptive essay. If you understand that you are with an amazing book beach descriptive essay. Research paper writing is one of the most often encountered assignments that students of different degrees of study tackle. Writing a quality academic paper within the deadline is not a simple job for each student. Hence, start as early as possible if you wish to deal with assignments yourself. Completing urgent orders When you're swamped with papers assignments and deadlines, it is completely logical that you want to obtain a finished paper as speedily as possible. New Step by Step Roadmap for Buy Research Paper Writing Service Perfect Writing is a UK based company which not only provides research paper writing services but in addition work depending on your requirements. The internet writing businesses have the notification they're providing students with higher quality and original on-line essay eservice. Now you can get genuine college essay online, one that is going to fit your financial plan and get your work done also. Writing is a present that comes naturally. If you don't find out how to begin your essay or where to search for supporting data, we'll be quite delighted to aid you. Research paper isn't paper essay and requires a lot of information analysis and access buy scholarly sources, which might not be available to you. It's highly crucial, otherwise, you won't have the ability to arrange data in an acceptable way. It is vital to take note you don't only chose a topic and get started browsing for data. Buy Research Paper Writing Service Features Our custom writing company is just one of the companies online that's able to supply quality write my term paper services that are authentic and reasonably priced. Write my term paper servic es are offered at custom writing businesses and sites online. It is also simpler to compare the write my term paper services supplied by the various writing companies online. It's therefore required to seek services from businesses that have writers who strictly adhere to the directions given. In order to acquire quality write my term paper solutions, one ahs to pick a business that has the absolute most qualified and the most dependable writers. There are several on-line businesses, and there are a couple of companies that offer quality online writing services. To obtain the best one which you must observe a wide choice of services which give you different advantages. There are a number of reasons why you must prefer our services.

Agency Costs and Corporate Governance Mechanisms Free Essays

string(69) " risk the loss of his job the greater the level of his compensation\." Agency costs and corporate governance mechanisms: Evidence for UK firms Chrisostomos Florackis and Aydin Ozkan* University of York, UK Abstract In this paper, we aim to extend the empirical literature on the determinants of agency costs by using a large sample of UK listed firms. To do so, we employ two alternative proxies for agency costs: the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses (SGA) to total sales. In our analysis, we control for the influence of several internal governance mechanisms or devices that were ignored by previous studies. We will write a custom essay sample on Agency Costs and Corporate Governance Mechanisms or any similar topic only for you Order Now Also, we examine the potential interactions between these mechanisms and firm growth opportunities in determining agency costs. Our results reveal that the capital structure characteristics of firms, namely bank debt and debt maturity, constitute two of the most important corporate governance devices for UK companies. Also, managerial ownership, managerial compensation and ownership concentration seem to play an important role in mitigating agency costs. Finally, our results suggest that the impact exerted by internal governance mechanisms on agency costs varies with firms’ growth opportunities. JEL classification: G3; G32 Keywords: Agency costs; Growth opportunities; Internal Corporate Governance Mechanisms. * Corresponding author. Department of Economics and Related Studies, University of York, Heslington, York, YO10 5DD, UK. Tel. : + 44 (1904) 434672. Fax: + 44 (1904) 433759. E-mail: ao5@york. ac. uk. We thank seminar participants at University of York, and the 2004 European Finance Association Meetings for helpful comments and suggestions. 1 1. Introduction Following Jensen and Meckling (1976), agency relations within the firm and costs associated with them have been extensively investigated in the corporate finance literature. There is a great deal of empirical work providing evidence that financial decisions, investment decisions and, hence, firm value are significantly affected by the presence of agency conflicts and the extent of agency costs. The focus of these studies has been the impact of the expected agency costs on the performance of firms. 1 Moreover, the implicit assumption is that, in imperfect capital markets, agency costs arising from conflicts between firms’ claimholders exist and the value of firms decreases if the market expects that these costs are likely to be realised. It is also assumed that there are internal and external corporate governance mechanisms that can help reduce the expected costs and their negative impact on firm value. For example, much of prior work on the ownership and performance relationship relies on the view that managerial ownership can align the interests of managers and shareholders and hence one would observe a positive impact exerted by managerial shareholdings on the performance of firms. The positive impact is argued to be due to the decrease in the expected costs of the agency conflict between managers and shareholders. Despite much valuable insights provided by this strand of literature, however, only very few studies directly tackle the measurement issue of the principal variable of interest, namely agency costs. Notable exceptions are Ang et al. (2000) and Sign and Davidson (2003), which investigate the empirical determinants of agency costs and focus on the role of debt and ownership structure in mitigating agency problems for the US firms. In doing so, they use two alternative proxies for agency costs: the ratio of total sales to total assets (asset turnover) and the ratio of selling, general and administrative expenses (SGA) to total sales. In line with the findings of prior research they provide evidence for the view that managerial ownership aligns the interests of managers and shareholders and, hence, reduces agency costs in general. However, there is no consensus on the role of debt in mitigating such problems and associated costs. Ang et al. (2000) point out that debt has an alleviating role whereas Sign and Davidson (2003) an aggravating one. The objective of this paper is to extend the investigation of these studies by analysing empirically the determinants of agency costs in the UK for a large sample of 1 See, for example, Morck et al. (1988); McConnell and Servaes (1990); and Agrawal and Knoeber (1996) among others. 2 listed firms. Following the works of Ang et al. (2000) and, Sign and Davidson (2003), we model both proxies of agency costs: asset turnover and the (SGA) ratio. More specifically, we empirically examine the impact of capital structure, ownership, board composition and managerial compensation on the costs likely to arise from agency conflicts between managers and shareholders. In doing so, we also pay particular attention to the role of growth opportunities in influencing the effectiveness of internal governance mechanisms in reducing agency costs. In carrying out the analysis in this paper, we aim to provide insights at least in three important areas of the empirical research on agency costs. First, in investigating the determinants of agency costs, the analysis of this paper incorporates important firmspecific characteristics (internal corporate governance devices) tha t possibly affect agency costs but were ignored by previous studies. For example, we explore the role the debt maturity structure of firms can play in controlling agency costs. It is widely acknowledged that short-term debt may be more effective than long-term debt in reducing the expected costs of the underinvestment problem of Myers (1977). 3 Accordingly, in our analysis, we consider the maturity structure of debt as a potential governance device that is effective in reducing the expected costs of the agency conflict between shareholders and debtholders. Similar to Ang et al. 2000) that investigate if bank debt creates a positive externality in the form of lower agency costs, we also check if the source of debt financing matters in mitigating agency problems. Another potentially effective corporate governance mechanism we consider relates to managerial compensation. Recent studies suggest that compensation contracts can motivate managers to take actions that maximize shareholders’ wealth (see, e. g. , Core et al. , 2001; Murphy, 1999 among ot hers). This is based on the view that financial â€Å"carrots† motivate managers to maximize firm value. That is, a manager will presumably be less likely, ceteris paribus, to exert insufficient effort and risk the loss of his job the greater the level of his compensation. You read "Agency Costs and Corporate Governance Mechanisms" in category "Essay examples" Several empirical studies provide evidence for the effectiveness of managerial compensation as a corporate governance mechanism. For instance, 2 As explained later in the paper, the two proxies for agency costs that are used in our analysis are more likely to capture the agency problems between managers and shareholders. However, we do not rule out the possibility that they may also capture the agency problems between shareholders and debtholders. It is argued that firm with greater growth opportunities should have more short-term debt because shortening debt maturity would make it more likely that debt will mature before any opportunity to exercise the growth options. Consistent with this prediction, there are several empirical d ebt maturity studies that find a negative relation between maturity and growth opportunities (see, e. g. , Barclay and Smith, 1995; Guedes and Opler, 1996; and Ozkan, 2000 among others). 3 Hutchinson and Gul (2004) find that managers’ compensation can moderate the negative association between growth opportunities and firm value. In this paper, we examine the effectiveness of managerial compensation as a corporate governance mechanism by including the salary of managers in our empirical model. We also acknowledge that there have been concerns about excessive compensation packages and their negative impact on corporate performance. Accordingly, we investigate the possibility of a non-monotonic impact the managerial compensation may exert on agency costs. Second, our empirical model captures potential interactions between corporate governance mechanisms and growth opportunities. Following McConnell and Servaes (1995) and Lasfer (2002), we expect the effectiveness of governance mechanisms in reducing agency problems to be dependent on firm’s growth opportunities. In particular, if agency problems are associated with greater information asymmetry (a common problem in high-growth firms), we expect the effectiveness of corporate governance mechanisms in mitigating asymmetric information problems to increase in high-growth firms (Smith and Watts, 1992 and Gaver and Gaver, 1993). However, if, as argued by Jensen (1986), agency problems are associated with conflicts over the use of free cash flow (a common problem in low-growth firms), we expect governance mechanisms that are likely to mitigate such problems to play a more important role in low-growth firms (Jensen, 1986). Last but not least, in contrast to previous studies that focus on the US market, we provide evidence for UK firms. Although the UK and the US are usually characterized as having a similar â€Å"common law† regulatory system (see, e. g. , La Porta et al. 1998), the UK market bears significant distinguishing characteristics. 4 It is argued that several of these characteristics may contribute to a more significant degree of managerial discretion and, hence, higher level of managerial agency costs. For example, despite the relatively high proportion of shares held by financial institutions, there is a great deal of evidence that financial investors do not take an active role in corporate governance. Similarly, UK boards are usually characterized as corporate devices that provide weak disciplinary function. More specifically, weak fiduciary obligations on directors have resulted in nonexecutives playing more an advisory than a monitoring role. 5 Consequently, the investigation of agency issues and the effectiveness of the alternative governance 4 For a more detailed discussion about the characteristics of the prevailing UK corporate governance system see Short and Keasey (1999); Faccio and Lasfer (2000); Franks et al. (2001); and Ozkan and Ozkan (2004). 5 Empirical studies by Faccio and Lasfer (2000), Goergen and Rennebog (2001), Franks et al. 2001) and Short and Keasey (1999) provide evidence on the weak role of institutions and board of directors in reducing agency problems in the UK. 4 mechanisms in the UK, in a period that witnesses an intensive discussion of corporate governance issues, would be of significant importance. Our results strongly suggest that managerial ownership constitutes a strong corporate governance mechanism for the UK firms. This result is consistent with the fi ndings provided by Ang et al. (2000) and Sign and Davidson (2003) for the US firms. Ownership concentration and salary also seem to play a significant role in mitigating agency related problems. The results concerning the role of capital structure variables on agency costs are striking. It seems that both the source and the maturity structure of corporate debt have a significant effect on agency costs. Finally, there is strong evidence that specific governance mechanisms are not homogeneous but vary with growth opportunities. For instance, we find that executive ownership is more effective as a governance mechanism for high-growth firms. This result is complementary to the results obtained by Smith and Watts (1992), Gaver and Gaver (1993) and Lasfer (2002), which support the view that high-growth firms are likely to prefer incentive mechanisms (e. g. managerial ownership) whereas low-growth firms focus more on monitoring mechanisms (e. g. short-term debt). The remainder of the paper is organized as follows. In section 2 we discuss the related theory and formulate our empirical hypotheses. Section 3 describes the way in which we have constructed our sample and presents several descriptive statistics of that. Section 4 presents the results of our univariate, multivariate and sensitivity analysis. Finally, section 5 concludes. 2. Agency costs and Governance Mechanisms In what follows, we will discuss the potential interactions between agency costs and internal corporate governance mechanisms available to firms. Also, we will analyze how firm growth opportunities affect agency costs and the relationship between governance mechanism and agency costs. 2. 1 Debt Financing Agency problems within a firm are usually related to free cash-flow and asymmetric information problems (see, for example, Jensen, 1986 and Myers and Majluf, 1984). It is widely acknowledged that debt servicing obligations help reduce of agency problems of this sort. This is particularly true for the case of privately held debt. For example, bank 5 debt incorporates significant signalling characteristics that can mitigate informational asymmetry conflicts between managers and outside investors (Jensen, 1986; Stulz, 1990; and Ross, 1977). In particular, the announcement of a bank credit agreement conveys positive news to the stock market about creditor’s worthiness. Bank debt also bears important renegotiation characteristics. As Berlin and Mester (1992) argue, because banks are well informed and typically small in number, renegotiation of a loan is easier. A bank’s willingness to renegotiate and renew a loan indicates the existence of a good relationship between the borrower and the creditor and that is a further good signal about the quality of the firm. Moreover, it is argued that bank debt has an advantage in comparison to publicly traded debt in monitoring firm’s activities and in collecting and processing information. For example, Fama (1985) argues that bank lenders have a comparative advantage in minimizing information costs and getting access to information not otherwise publicly available. Therefore, banks can be viewed as performing a screening role employing private information that allows them to evaluate and monitor borrowers more effectively than other lenders. In addition to debt source, the maturity structure of debt may matter. For example, short-term debt may be more useful than long-term debt in reducing free cash flow problems and in signalling high quality to outsiders. For example, as Myers (1977) suggests, agency conflicts between managers and shareholders such as the underinvestment problem can be curtailed with short-term debt. Flannery (1986) argues that firms with large potential information asymmetries are likely to issue short-term debt because of the larger information costs associated with long-term debt. Also, short-term debt can be advantageous especially for high-quality companies due to its low refinancing risk (Diamond, 1991). Finally, if yield curve is downward sloping, issuing short-term debt increases firm value (Brick and Ravid, 1985). Consequently, bank debt and short-term debt are expected to constitute two important corporate governance devices. We include the ratio of bank debt to total debt and the ratio of short-term debt to total debt to our empirical model so as to approximate the lender’s ability to mitigate agency problems. Also, we include the ratio of total debt to total assets (leverage) to approximate lender’s incentive to monitor. In general, as leverage increases, so does the risk of default by the firm, hence the incentive for the lender to monitor the firm6. 6 Ang et al. 2000) focus on sample of small firms, which have do not have easy access to public debt, and examine the impact of bank debt on agency costs. On the contrary, Sign and Davidson (2003) focus on a sample of large firms, which have easy access to public debt, and examine the impact of public debt on 6 2. 2 Managerial Ownership The conflicts of interest between managers and shareholders arise mainly from the separation b etween ownership and control. Corporate governance deals with finding ways to reduce the magnitude of these conflicts and their adverse effects on firm value. For instance, Jensen and Meckling (1976) suggest that managerial ownership can align the interest between these two different groups of claimholders and, therefore, reduce the total agency costs within the firm. According to their model, the relationship between managerial ownership and agency costs is linear and the optimal point for the firm is achieved when the managers acquires all of the shares of the firm. However, the relationship between managerial ownership and agency costs can be non-monotonic (see, for example, Morck et al. , 1988; McConnel and Servaes, 1990,1995 and, Short and Keasey, 1999). It has been shown that, at low levels of managerial ownership, managerial ownership aligns managers’ and outside shareholders’ interests by reducing managerial incentives for perk consumption, utilization of insufficient effort and engagement in nonmaximizing projects (alignment effect). After some level of managerial ownership, though, managers exert insufficient effort (e. g focus on external activities), collect private benefits (e. g. build empires or enjoy perks) and entrench themselves (e. g. undertake high risk projects or bend over backwards to resist a takeover) at the expense of other investors (entrenchment effect). Therefore the relationship between the two is non-linear. The ultimate effect of managerial ownership on agency costs depends upon the trade-off between the alignment and entrenchment effects. In the context of our analysis we propose a non-linear relationship between managerial ownership and managerial agency costs. However, theory does not shed much light on the exact nature of the relationship between the two and, hence, we do not know which of the effects will dominate the other and at what levels of managerial ownership. We, therefore, carry out a preliminary investigation about the pattern of the relationship between managerial ownership and agency costs. Figure 1 presents the way in which the two variables are associated. [Insert Figure 1 here] agency costs. Our study is more similar to that of Ang et al (2000) given that UK firms use significant amounts of bank debt financing (see Corbett and Jenkinson, 1997). 7 Clearly, at low levels of managerial ownership, asset turnover and managerial ownership are positively related. However, after managerial ownership exceeds the 10 per cent level, the relationship turns from positive to negative. A third turning point is that of 30 percent after which the relationship seems to turn to positive again. Consequently, there is evidence both for the alignment and the entrenchment effects in the case of our sample. In order to capture both of them in our empirical specification, we include the level, the square and the square of managerial ownership in our model as predictors of agency costs. 2. 3 Ownership Concentration A third alternative for alleviating agency problems is through concentrated ownership. Theoretically, shareholders could take themselves an active role in monitoring management. However, given that the monitoring benefits for shareholders are proportionate to their equity stakes (see, for example, Grossman and Hart, 1988), a small or average shareholder has little or no incentives to exert monitoring behaviour. In contrast, shareholders with substantial stakes have more incentives to supervise management and can do so more effectively (see Shleifer and Vishny, 1986; Shleifer and Vishny, 1997 and Friend and Lang, 1988). In general, the higher the amount of shares that investors hold, the stronger their incentives to monitor and, hence, protect their investment. Although large shareholders may help in the reduction of agency problems associated with managers, they may also harm the firm by causing conflicts between large and minority shareholders. The problem usually arises when large shareholders gain nearly full control of a corporation and engage themselves in self-dealing expropriation procedures at the expense of minority shareholders (Shleifer and Vishny, 1997). Also, as Gomez (2000) points out, these expropriation incentives are stronger when corporate governance of public companies insulates large shareholders from takeover threats or monitoring and the legal system does not protect minority shareholders because either of poor laws or poor enforcement of laws. Furthermore, the existence of concentrated holdings may decrease diversification, market liquidation and stock’s ability to grow and, therefore, increase the incentives of large shareholders to expropriate firm’s resources. Several empirical studies provide evidence consistent with that view (see, for example, Beiner et al, 2003). In order to test the impact of ownership concentration on agency costs, we include a variable that refers to the sum of stakes of shareholders with equity stake greater than 3 8 per cent in our regression equation. The results remain robust when the threshold value changes from 3 per cent to 5 per cent or 10 per cent. 2. 4 Board of Directors Corporate governance research recognizes the essential role performed by the board of directors in monitoring management (Fama and Jensen, 1983; Weisbach, 1988 and Jensen, 1993). The effectiveness of a board as a corporate governance mechanism depends on its size and composition. Large boards are usually more powerful than small boards and, hence, considered necessary for organizational effectiveness. For instance, as Pearce and Zahra (1991) point out, large powerful boards help in strengthening the link between corporations and their environments, provide counsel and advice regarding strategic options for the firm and play crucial role in creating corporate identity. Other studies, though, suggest that large boards are less effective than large boards. The underlying notion is that large boards make coordination, communication and decision-making more cumbersome than it is in smaller groups. Recent studies by Yermack, 1996; Eisenberg et al. , 1998 and Beiner et al, 2004 support such a view empirically. The composition of a board is also important. There are two components that characterize the independence of a board, the proportion of non-executive directors and the separated or not roles of chief executive officer (CEO) and chairman of the board (COB). Boards with a significant proportion of non-executive directors can limit the exercise of managerial discretion by exploiting their monitoring ability and protecting their reputations as effective and independent decision makers. Consistent with that view, Byrd and Hickman (1992) and Rosenstein and Wyatt (1990) propose a positive relationship between the percentage of non-executive directors on the board and corporate performance. Lin et al. (2003) also propose a positive share price reaction to the appointment of outside directors, especially when board ownership is low and the appointee possesses strong ex ante monitoring incentives. Along a slightly different dimension, Dahya et al. (2002) find that top-manager turnover increases as the fraction of outside directors increases. Other studies find exactly the opposite results. They argue that non-executive directors are usually characterized by lack of information about the firm, do not bring the requisite skills to the job and, hence, prefer to play a less confrontational role rather than a more critical monitoring one (see, for example, Agrawal and Knoeker, 1996; Hermalin 9 nd Weisbach, 1991, and Franks et al. , 2001)7. As far as the separation between the role of CEO and COB is concerned, it is believed that separated roles can lead to better board performance and, hence, less agency conflicts. The Cadbury (1992) report on corporate governance stretches that issue and recommends that CEO and COB should be two distinct jobs. Firms should comply with the recommendation of the report for their own benefit. A decision not to combine these roles should be publicly e xplained. Empirical studies by Vafeas and Theodorou (1998), and Weir et al. (2002), though, which study that issue for the case of the UK market, provide results that do not support Cadbury’s stance that the CEO – COB duality is undesirable. In the context of the UK market, UK boards are believed to be less effective than the US ones. For instance,. To test the effectiveness of the board of directors in mitigating agency problems we include three variables in our empirical model: a) the ratio of the number of non-executive directors to he number of total directors, b) the total number of directors (board size) and c) a dummy variable which takes the value of 1 when the roles of CEO and COB are not separated and 0 otherwise. 2. 5 Managerial Compensation Another important component of corporate governance is the compensation package that is provided to firm management. Recent studies by Core et al. (2001) and Murphy (1999) suggest, among others, that compensation contracts, whose u se has been increased dramatically during the 90’s, can motivate managers to take actions that maximize shareholders’ wealth. In particular, as Core et al. (2001) point out, if shareholders could directly observe the firm’s growth opportunities and executives’ actions no incentives would be necessary. However, due to asymmetric information between managers and shareholders, both equity and compensation related incentives are required. For example, an increase in managerial compensation may reduce managerial agency costs in the sense that satisfied managers will be less likely, ceteris paribus, to utilize insufficient effort, perform expropriation behaviour and, hence, risk the loss of their job. Despite the central importance of the issue, only a few empirical studies examine the impact of managerial compensation components on corporate performance. For example, Jensen and Murthy 7 Such a result may be consistent with the governance system prevailing in the UK market given the fact that UK legislation encourages non-executive directors to be inactive since it does not impose fiduciary obligations on them. Also, UK boards are dominated by executive directors, which have less monitoring power. Franks et al. (2001) confirm this view by providing evidence on a non-disciplinary role of nonexecutive directors in the UK. 10 (1990) find a statistically significant relationship between the level of pay and performance. Murphy (1995), finds that the form, rather than the level, of compensation is what motivates managers to increase firm value. In particulars, he argues that firm performance is positively related to the percentage of executive compensation that is equity based. More recently, Hutchinson and Gul (2004) analyze whether or not managers’ compensation can moderate the negative association between growth opportunities and firm value8. The results of this study indicate that corporate governance mechanisms such as managerial remuneration, managerial ownership and non-executive directors possibly affect the linkages between organizational environmental factors (e. g. growth opportunities) and firm performance. Finally, Chen (2003) analyzes the relationship between equity value and employees’ bonus. He finds that the annual stock bonus is strongly associated with the firm’s contemporaneous but not future performance. Managerial compensation, though, is considered to be a debated component of corporate governance. Despite its potentially positive impact on firm value, compensation may also work as an â€Å"infectious greed† which creates an environment ripe for abuse, especially at significantly high levels. For instance, remuneration packages usually include extreme benefits for managers such as the use of private jet, golf club membership, entertainment and other expenses, apartment purchase etc. Benefits of this sort usually cause severe agency conflicts between managers and shareholders. 9 Therefore, it is possible that the relationship between compensation and agency costs is non-monotonic. Similar to the case of managerial ownership, we carry out a preliminary investigation about the pattern of the relationship between salary and agency costs. As shown in figure 2, the relationship between salary and agency costs is likely to be non-linear10. In our empirical model, we include the ratio of the total salary paid to executive directors to total assets as a determinant of agency costs. Also, in order to capture potential 8 Rather, the majority of the studies in that strand of literature reverse the causation and examine the impact of performance changes on executive or CEO compensation (see, for example, Rayton, 2003 among others). Concerns about excessive compensation packages and their negative impact on corporate performance have lead to the establishment of basic recommendations in the form of â€Å"best practises† in which firms should comply so as the problem with excessive compensation to be diminished. In the case of the UK market, for example, one of the basic recommendations of the Cadbury (1992) report was the establishment of an independent compensation committee. Also, in a posterior report, the Greenbury (1995) report, specific propositions about remuneration issues were made. For example, an issue that was stretched was the rate of increase in managerial compensation. In the case of the US market, the set of â€Å"best practises† includes, among others, the establishment of a compensation committee so as transparency and disclosure to be guaranteed (same practise an in the UK) and the substitution of stock options as compensation components with other tools that promote the long-term value of the company 10 A similar preliminary analysis is carried out so as to check potential non-linearities concerning the relationship between the rest of internal governance mechanisms and agency costs. Our results (not reported) indicate that none of them is related to agency costs in a non-linear way. 11 non-linearities, we include higher ordered salary terms in the regression equation. Finally, we include a dummy variable, which takes the value of 1 when a firm pays options or bonuses to managers and 0 otherwise. Including that dummy variable in our analysis enables us to test whether or not options and bonuses themselves provide incentives to managers. As Zhou (2001) points out, ignoring options is likely to incur serious problems unless managerial options are either negligible compared to ownership or almost perfectly correlated with ownership. [Insert Figure 2 here] 2. 6 Growth Opportunities The magnitude of agency costs related to underinvestment, asset substitution and free cash flow differ significantly across high-growth and low-growth firms. In the underinvestment problem, managers may decide to pass up positive net present value projects since the benefits would mainly accrue to debt-holders. This is more severe for firms with more growth-options (Myers, 1977). Asset substitution problems, which occur when managers opportunistically substitute higher variance assets for low variance assets, are also more prevalent in high-growth firms due to information asymmetry between investors and borrowers (Jensen and Meckling, 1976). High-growth firms, though, face lower free cashlow problems, which occur when firms have substantial cash reserves and a tendency to undertake risky and usually negative NPV investment projects (Jensen, 1986). Given the different magnitude and types of agency costs between high-growth and low-growth firms, we expect the effectiveness of corporate governance mechanisms to vary with growth opportunities. In particular, if agency problems are associated with greater underinvestment or information asymmetry (a common problem in high-growth firms), we expect corporate governance mechanisms that mitigate these kinds of problems to be more effective in high-growth firms (Smith and Watts, 1992 and Gaver and Gaver, 1993). However, if, as argued by Jensen (1986), agency problems are associated with conflicts over the use of free cash flow (a common problem in low-growth firms), we expect governance mechanisms that mitigate such problems to play a more important role in low-growth firms (Jensen, 1986). Several empirical studies that model company performance confirm the existence of potential interactions between internal governance mechanism and growth opportunities. For example, McConnell and Servaes (1995) find that the relationship between firm value and leverage is negative for high-growth firms and positive for low12 growth firms. Their results also indicate that equity ownership matters, and the way in which it matters depends upon investment opportunities. Specifically, they provide weak evidence that on the view that the allocation of equity ownership between corporate insiders and other types of investors is more important in low-growth firms. Also, Lasfer (2002) points out that high-growth firm (low-growth firms) rely more on managerial ownership (board structure) to mitigate agency problems. Finally, Chen (2003) finds that the positive relationship between annual stock bonus and equity value is stronger for firms with greater growth opportunities. In order to capture potential interaction effects, we include interaction terms between proxies for growth opportunities and governance mechanisms in our empirical model and, also, employ sample-splitting methods (see, for example, McConnell and Servaes, 1995 and Lasfer, 2002). Based on previous empirical evidence the prediction we make is that mechanisms that are used to mitigate asymmetric information problems (free cash flow problems) are stronger in high-growth firms (low-growth firms). 3. Data and Methodology 3. 1 Data For our empirical analysis of agency costs we use a large sample of ublicly traded UK firms over the period 1999-2003. We use two data sources for the compilation of our sample. Accounting data and data on the market value of equity are collected from Datastream database. Specifically, we use Datastream to collect information for firm size, market value of equity, annual sales, selling general and administrative expenses, level of bank debt, short-term debt and to tal debt. Information on firm’s ownership, board and managerial compensation structure is derived from the Hemscott Guru Academic Database. This database provides financial data for the UK’s top 300,000 companies, detailed data on all directors of UK listed companies, live regulatory and AFX News feeds and share price charts and trades. Specifically, we get detailed information on the level of managerial ownership, ownership concentration, size and composition of the board, managerial salary, bonus, options and other benefits. Despite the fact that data on directors are provided in a spreadsheet format, information for each item is given in a separate file. This makes data collection for the required variables fairly complicated. For example, in order to get information about the amount of shares held by executive directors we have to combine two different files: a) the 13 file that contains data on the amount of shares held by each director and b) the file that provides information about the type of each directorship (e. g. executive director vs. nonexecutive director). Also, we have to take into account the fact that several directors in the UK hold positions in more than one company. Complications also arise when we attempt to collect information about the composition of the board and the remuneration package that is provided to executive directors. The way in which our final sample is compiled is the following: we start with a total of 1672 UK listed firms derived from Datastream. This number reduces to 1450 firms after excluding financial firms from the sample. After matching Datastream data with the data provided by Hemscott, the number of firms further decreases to 1150. Missing firmyear observations for any variable in the model during the sample period are also dropped. Finally, we exclude outliers so as to avoid the problem with extreme values. We end up with 897 firms for our empirical analysis. 3. Dependent Variable In our analysis we use two alternative proxies to measure agency costs. Firstly, we use the ratio of annual sales to total assets (Asset Turnover) as an inverse proxy for agency costs. This ratio can be interpreted as an asset utilization ratio that shows how effectively management deploys the firm’s assets. For instance, a low asset turnover ratio may indicate poor investment decisions, insufficient effort, consumption of perquisites and purchase of unproductive products (e. g. office space). Firms with low asset turnover ratios are expected to experience high agency costs between managers and shareholders11. A similar proxy for agency costs is also used in the studies of Ang et al. (2000) and Sign and Davidson (2003). However, Ang et al. (2000), instead of using the ratio directly, they use the difference in the ratios of the firm with a certain ownership and management structure and the no-agency-cost base case firm. Secondly, following Sign and Davidson (2003), we use the ratio of selling, general and administrative (SGA) expenses to sales (expense ratio). In contrast to asset turnover, expense ratio is a direct proxy of agency costs. SGA expenses include salaries, commissions charged by agents to facilitate transactions, travel expenses for executives, advertising and marketing costs, rents and other utilities. Therefore, expense ratio should 11 The asset turnover ratio may also capture (to some extent) agency costs of debt. For instance, the sales ratio provides a good signal for the lender about how effectively the borrower (firm) employs its assets and, therefore, affects the cost of capital 14 reflect to a significant extent managerial discretion in spending company resources. For example, as Sign and Davidson (2003) point out, â€Å"management may use advertising and selling expenses to camouflage expenditures on perquisites† p. 7. Firms with high expense ratios are expected to experience high agency costs between managers and shareholders12. 3. 3 Independent Variables Our empirical model includes a set of corporate governance variables related to firm’s ownership, board, compensation and capital structure. Several control variables are also incorporated. For example, we use the logarithm of total assets in 1999 prices as a proxy for firm size (SIZE). Also, we include the market-to-book value (MKTBOOK) as a proxy for growth opportunities. Finally, we divide firms into 15 sectors and include 14 dummy variables accordingly so as to control for sector specific effects. Analytical definitions for all these variables are given in Table 1. [Insert Table 1 here] 3. 4 Methodology We examine the determinants of agency costs by employing a cross sectional regression approach. Following Rajan and Zingales (1995) and Ozkan and Ozkan (2004), the dependent variable is measured at some time t, while for the independent variables we use average-past values. Using averages in the way we construct our explanatory variables helps in mitigating potential problems that may arise due to short-term fluctuations and extreme values in our data. Also, using past values reduces the likelihood of observed relations reflecting the effects of asset turnover on firm specific factors. Specifically, the dependent variable is measured in year 2003. For accounting variables and the market-tobook ratio we use average values for the period 1999-2002. Ownership, board and compensation structure variables are measured in year 2002. Given that equity ownership characteristics in a country are relatively stable over a certain period of time, we do not expect that measuring them in a single year would yield a significant bias in our results (see also La Porta et al. , 2002, among others). 12 An alternative proxy for agency costs between managers and shareholders, which is not used in our paper though, is the interaction of company’s growth opportunities with its free cash flow (see Doukas et al. , 2002). 15 Our approach captures potential interaction effects that may be present. For example, as explained analytically in section 2. 6, the nature of the relationship between the alternative governance mechanisms or devices and agency costs may vary with firm’s growth opportunities. To explore that possibility, we firstly interact our proxy for growth opportunities (MKTBOOK) with the alternative corporate governance mechanisms. In this way, we test for the existence of both main effects (the impact governance variables on agency costs) and conditional effects (the impact of growth opportunities on the relationship between governance variables and agency costs). Additionally, we split the sample into high-growth and low-growth firms and estimate our empirical models for each sample separately. Then we check whether the coefficients of governance variables retain their sign and their significance across the two sub-samples. 3. 5 Sample Characteristics Table 2 presents descriptive statistics for the main variables used in our analysis. It reveals that the average values of asset turnover ratio and SGA ratio are 1. 24 and 0. 45 respectively. The mean value for managerial ownership is 14. 4 per cent of which the average proportion of stakes held by executive (non-executive) directors is 10. 68 per cent (4. 06 per cent). The ownership concentration reaches the level of 37. 19 per cent, on average, in the UK firms. Also, the average proportion of non-executive directors is 49. 5 per cent and the average board size consists of 6. 97 directors. Finally, we were able to identify only 73 firms out of the final 897 (8. 1 per cent) in which the same per son held the positions of CEO and COB. As far as the capital structure variables are concerned, the average proportion of bank debt on firm’s capital structure is 55. 5 per cent and that of short-term debt is 49. 53 per cent. Finally, the average market-to-book value is 2. 09. In general, these values are in line with those reported in other studies for UK firms (see, for example, Ozkan and Ozkan, 2004 and Short and Keasey, 1999). [Insert Table 2 here] The results of the Pearson’s Correlation of our variables are reported in Table 3. Our inverse proxy for agency costs, asset turnover, is clearly positively correlated to managerial ownership, executive ownership, salary, bank debt and short-term debt. Ownership concentration is also positively related to asset turnover but the correlation coefficient is not statistically significant. On the contrary, board size and non-executive 16 directors are found to be negatively correlated with asset turnover. Finally, as expected, asset turnover is found to be negatively correlated with both growth opportunities and firm size. The results for our second proxy for agency costs, SGA, are qualitatively similar with a few exceptions (e. g. short-term debt) but with opposite signs given that SGA is a direct and not an inverse proxy for agency costs. Insert Table 3 here] 4. Empirical Results 4. 1 Univariate analysis In Table 4 we report univariate mean-comparison test results of the sample firm subgroups categorized on the basis of above and below median values for managerial ownership, ownership concentration, board size, proportion of non-executives, bank debt, short-term debt, total debt, salary, firm size and growth opportunities. Firms with above median managerial ownership (ownership concentration) have asset turnover of 1. 34 (1. 31) whereas those with below median managerial ownership (ownership concentration) have asset turnover of 1. 5 (1. 17). These differences are statistically significant at the 1 per cent (5 per cent) level. The results for executive ownership, salary, bank debt and short-term debt are also found to be statistically significant and are in the hypothesized direction. Specifically, we find that firms with above median values for all the above mentioned variables have relatively higher asset utilization ratios. On the contrary, there is evidence that firms with larger board sizes indicate significantly lower asset utilization ratios. Insert Table 4 here] In panel B of the same table we report the results using SGA expense ratio as a proxy for agency costs. Results are in general not in line with the hypothesized signs with notable exceptions those of ownership concentration and growth opportuniti es. For example, firms with above median ownership concentration (MKTBOOK) have an SGA expense ratio of 0. 41 (0. 55) whereas firms with below median ownership concentration (MKTBOOK) have an SGA expense ratio of 0. 49 (0. 36). However, the results for managerial ownership, salary and short-term debt suggest that these governance mechanisms or devices are not effective in protecting firms from excessive SGA 17 expenses. Sign and Davidson (2003) obtains a set of similar results, for the case when agency costs are approximated with the SGA ratio. Overall, the univariate analysis indicates several corporate governance mechanisms or devices, such as managerial ownership, ownership concentration, salary, bank debt and short-term debt, which can help mitigate agency problems between managers and shareholders. Also, consistent with previous studies, we find that the relation between governance variables and agency costs is stronger for the asset turnover ratio than the SGA expense ratio. The analysis that follows allows us to test the validity of these results in a multivariate framework. 4. 2 Multivariate analysis In this section we present our results that are based on a cross sectional regression approach. We start with a linear specification model, where we include only total debt from our set of capital structure variables (model 1). In general, the estimated coefficients are in line with the hypothesized signs. Specifically, consistent with the results of Ang et al. (2000) and Sign and Davidson (2003), we find both managerial ownership and ownership concentration to be positively related to asset-turnover. The coefficients are statistically significant at the 5 per cent and 1 per cent significance level respectively. On the contrary, the coefficient for board size is negative, which probably indicates that firms with larger board size are less efficient in their asset utilization. Also, the results for our proxy for growth opportunities (MKTBOOK) support the view that high-growth firms suffer from higher agency costs than low-growth firms. Finally, there is strong evidence that managerial salary can work as an effective incentive mechanism that helps aligning the interests of managers with those of shareholders. Specifically, the coefficient for salary is positive and statistically significant to the 1 per cent level. Therefore, compared to previous studies, our empirical model provides evidence on the existence of an additional potential corporate governance mechanism available to firms. Insert Table 5 here] In model 2 we incorporate two additional capital structure variables, the ratio of bank debt to total debt and the ratio of short-term debt to total debt, in order to test whether debtsource and debt-maturity impacts agency costs. Also, we split managerial ownership into executive ownership (the amount of shares held by executive directors) and non-execut ive 18 ownership (the amount of shares held by non-executive directors). We do this because we expect that equity ownership works as a better incentive mechanism in the hands of executive directors rather in the hands of non-executive directors. According to our results, bank debt is positively related to asset turnover. Also, in addition to debt source, the maturity structure of debt seems to have a significant effect on agency costs. The coefficient of short-term debt is positive and statistically significant at the 1 per cent significance level. Furthermore, there is evidence that from total managerial ownership, only the amount of shares held by executive directors can enhance asset utilization and, hence, align the interest of managers with those of shareholders. In model 3 we estimate a non-linear model by adding the square of salary. As explained earlier in the paper, a priori expectations, which are supported by preliminary graphical investigation, suggest that the relationship between asset turnover and salary can be non-monotonic. Our results provide strong evidence that the relationship between salary and asset turnover is non-linear. In particular, at low levels of salary, the relationship between salary and asset turnover is positive. However, at higher levels of salary, the relationship becomes negative. This result is consistent with studies that suggest that extremely high levels of salary usually work as an â€Å"infectious greed† and create agency conflicts between managers and shareholders. The coefficients of the remaining variables are similar to those reported in models 1 and 2. Finally, in model 4 we allow for a non-linear relationship between executive ownership and agency costs. However, our results do not support such a relationship and, therefore, the square term in our following models13. To sum up, the results of Table 5 indicate that managerial ownership (executive ownership), ownership concentration, salary (when it is at low levels), bank debt and short-term debt can help in mitigating agency problems by enhancing asset utilization. Also, the coefficients for the control variables market to book and firm size, negative and positive respectively, suggest that smaller and non- growth firms are associated with reduced asset utilization ratio and, hence, more severe agency problems between managers and shareholders. As discussed earlier in the paper, there is a possibility that the nature of the relationship between the alternative governance mechanisms or devices and agency costs varies with firm’s growth opportunities. In Panel A of Table 6, we explore such a In trial regressions, which are not reported, the cubic term of executive ownership is also included in our model. Once more, the results do not support the existence of a non-monotonic relationship. 13 19 possibility by interacting those governance mechanisms found significant in models 1-4 with growth opportunities, proxied by market-to-book ratio. Our empirical results support the existence of two interaction effects. We find that executive ownership is an effective governance mechanism especially for high-growth firms (the coefficient EXECOWNER* MKTBOOK is positive and statistically significant). This result is consistent with the study of Lasfer (2002), which suggests that the positive relationship between managerial ownership and firm value is stronger in high-growth firms. On the contrary, the coefficient SHORT_DEBT*MKTBOOK is found to be negative and statistically significant. This means that the efficiency of short-term debt in mitigating agency problems is lower for high-growth firms. A possible explanation may be that short-term debt basically mitigates agency problems related to free cash flow. Given that high-growth firms do not suffer from severe free cash-flow problems (but mainly from asymmetric information problems), the efficiency of short-term debt as governance device decreases for these firms. One could argue, though, that short-term debt should be more important for the case of highgrowth firms since it helps reduce underinvestment problems. However, it seems that this effect is not very strong for the case in our sample. A similar result is obtained in McConnell and Servaes (1995) who find that the relationship between corporate value and leverage is positive (negative) for low-growth (high-growth) firms14. [Insert Table 6 here] Secondly, we use the variable MKTBOOK so as two split the sample into two subsamples. We label the upper 45 per cent in terms of MKTBOOK as â€Å"high-growth firms† and the lower 45 per cent as â€Å"low-growth firms†. Then, we re-estimate our basic model for the two sub-samples separately (Table 6, panel B). The results of this exercise confirm the existence of an interaction effect between executive ownership and asset turnover. In particular, the coefficient of EXECOWNER is positive and statistically significant only in the case of the sample that includes only high-growth firms. As far as short-term debt is concerned, it is found to be positive and statistically significant in both samples. 14 The idea in McConnell and Servaes (1995) is that debt has both a positive and a negative impact on the value of the firm because of its influence on corporate investment decisions. What possibly happens is that the negative effect of debt dominates the positive effect in firms with more positive net present value projects (i. e. , high-growth firms) and that the positive effect will dominate the negative effect for firms with fewer positive net present value projects (i. e. , low-growth firms). 20 To summarize, the results of our multivariate analysis suggest, among others, that executive ownership and ownership concentration can work as effective governance mechanisms for the case of the UK market. These results are in line with the ones reported by the studies Ang et al. (2000) and sign and Davidson (2003). Also, we find that, in addition to the source of debt, the maturity structure of debt can help to reduce agency conflicts between managers and shareholders. The fact that previous studies have ignored the maturity structure of debt may partly explain their contradicting results concerning the relationship between capital structure and agency costs. Furthermore, we find that salary can work as an additional mechanism that provides incentives to managers to take valuemaximizing actions. However, its impact on asset turnover is not always positive i. e. the relationship between asset turnover and salary is non-monotonic. Finally, there is strong evidence that the relationship between several governance mechanisms and agency costs varies with growth opportunities. Specifically, our results support the view that the positive relationship between executive ownership (short-term debt) is stronger for the case of high growth (low growth) firms. 4. Robustness checks Given the significant impact of growth opportunities on agency costs (main impact) and on the impact of other corporate governance mechanisms (conditional impact), we further investigate the relationship between growth opportunities, governance mechanisms and agency costs. At first, we substitute the variable MKTBOOK with an alternative proxy for growth opportunities. The new proxy is derived after employing common factor analysis, a statistical technique that uses the correlations between observed variables to estimate common factors and the structural relationships linking factors to observed variables. The variables which are used in order to isolate latent factors that account for the patterns of colinearity are following variables: MKTBOOK = Book value of total assets minus the book value of equity plus the market value of equity to book value of assets; MTBE = Market value of equity to book value of equity; METBA = Market value of equity to the book value of assets; METD = Market value of equity plus the book value of debt to the book value of assets. 21 These variables have been extensively used in the literature as alternative proxies for growth opportunities and Tobin’s Q. As shown in Table 7 (panel A) all these variables are highly correlated to each other. In order to make sure that principal component analysis can provide valid results for the case of our sample, we perform two tests in our sample, the Barlett’s test and the Kaiser-Meyer-Olkin test. The first test examines whether or not the intercorrelation matrix comes from a population in which the variables are noncollinear (i. e. an identity matrix). The second test is a test for sampling adequacy. The results from these tests, which are reported in panel B, are encouraging and suggest that common factor analysis can be employed in our sample since all the four proxies are likely to measure the same â€Å"thing† i. e. growth opportunities. Panel C presents the eigenvalues of the reduced correlation matrix of our four proxies for growth opportunities. Each factor whose eigenvalue is greater than 1 explains more variance than a single variable. Given that only one eigenvalue is greater than 1, our common factor analysis provides us with one factor that can explain firm growth opportunities. Clearly, as shown in panel D, the factor is highly correlated with all MKTBOOK, MTBE, METBA and METD. We name the new variable GROWTH and use it as an alternative proxy for growth opportunities. Descriptive statistics for the variable GROWTH are presented in panel D. [Insert Table 7 here] Table 8 presents the results of cross-section analysis after using the variable GROWTH as proxy for agency costs. In general, the results of such a task are similar to the ones reported previously. For instance, there is strong evidence that executive ownership, ownership concentration, salary, short-term debt and, to some extent, bank debt are positively related to asset turnover. Also, there is some evidence supporting a non-linear relationship between salary and asset turnover. Finally, our results clearly indicate that agency costs differ significantly across high-growth and low-growth firms and, most importantly, there is a significant interaction effect between growth opportunities and executive ownership. However, we can not provide any evidence on the existence of an interaction between asset turnover and short-term debt. [Insert Table 8 here] 22 In panel B of table 8, we split our sample into high-growth and low-growth firms on the basis of high and low values for the variable GROWTH. Specifically, we label the upper 45 per cent in terms of GROWTH as â€Å"high-growth firms† and the lower 45 per cent as â€Å"low-growth firms†. Then we estimate our basic model for each sub-sample separately. The results are very similar to the ones reported in Table 6 (panel B), where we apply a similar methodology. As an additional robustness check, we use a third proxy for growth opportunities, a dummy variable that takes the value of 1 if the firm is a high-growth firm and 0 otherwise, and re-estimate the models 6 and 7 of Table 8. The definition used in order to distinguish between high-growth and low-growth firms is the following: Firms above the 55th percentile in terms of the variable GROWTH are called high-growth firms. Firms below the 45th percentile in terms of the variable GROWTH are called low-growth firms. Finally, firms between the 45th and 55th percentile are excluded from the sample. The results (not reported) are qualitatively similar to the ones reported in Table 8. For example, there is evidence for the existence of an interaction effect between executive ownership and growth opportunities but not for the one between short-term debt and growth opportunities. Also, we re-estimate the models reported in Table 8 after substituting the total salary paid to executive directors for the total remuneration package paid to executive directors. We are doing so given that the total remuneration package that is paid to managers includes several other components. For instance, the components of compensation structure have been increased in number during the last decade and may include annual performance bonus, fringe benefits, stock (e. g. preference shares), stock options, stock appreciation rights, phantom shares and other deferred compensation mechanisms like qualified retirement plans (see Lynch and Perry, 2003 for an analytical discussion). Once more, the results do not change substantially. Finally, in Table 9 we substitute the annual sales to total assets with the ratio of SGA expenses to total sales. As already mentioned earlier in the paper, this ratio can be used as a direct proxy for agency costs. Our results, as presented in Table 9, indicate that executive ownership, ownership concentration and total debt help reduce discretionary spending and, therefore, the agency conflicts between managers and shareholders. Sign and Davidson (2003) do not find any evidence to support these results. Also, we find that agency costs and growth opportunities are positively related i. . the coefficient of the variable GROWTH is positive and statistically significant to the 5 per cent statistical level. 23 Finally, our results support the existence of an interaction effect between growth opportunities and executive ownership. However, once more, our analysis does not indicate the existence of an interaction effect between short-term debt and growth opportunities. [Insert Table 9 her e] 5. Conclusion In this paper we have examined the effectiveness of the alternative corporate governance mechanisms and devices in mitigating managerial agency problems in the UK market. In particular, we have investigated the impact of capital structure, corporate ownership structure, board structure and managerial compensation structure on the costs arising from agency conflicts mainly between managers and shareholders. The interactions among them and growth opportunities in determining the magnitude of these conflicts have also been tested. Our results strongly suggest managerial ownership, ownership concentration, executive compensation, short-term debt and, to some extent, bank debt are important governance mechanisms for the UK companies. Moreover, â€Å"growth opportunities† is a significant determinant of the magnitude of agency costs. Our results suggest that highgrowth firms face more serious agency problems than low-growth firms, possibly because of information asymmetries between managers, shareholders and debtholders. Finally, there is strong evidence that some governance mechanisms are not homogeneous but vary with growth oppo How to cite Agency Costs and Corporate Governance Mechanisms, Essay examples

Yellow Journalism Essay Example For Students

Yellow Journalism Essay The people of Russia were led to believe that on New Years Day, January 1st, President Boris Yeltsin suspiciously and suddenly resigned. Some people claim he was to old and to senile to finish his presidential term, others claim he was too sick, deathly sick, others claim he was just fed up with the horrible condition of the Russian Government. Still, a raising number of conspirators are led to believe that Boris Yeltsin, in no way resigned, but was silently assassinated by a group of terrorist rebels from Southern Siberia. Russian Intelligence staged the entire resigning to prevent panic and chaos amongst citizens during the coming of the New Year. Although not a thing has been proved yet, people in Russia are beginning to get suspicious, Yeltsin has not been seen on the news or in his private estate. We will write a custom essay on Yellow Journalism specifically for you for only $16.38 $13.9/page Order now The Rallies held to conspire about the truth are brutally broken-up by Moscow police officers with knight sticks and riot poles, many citizens are rushed to the hospital to intensive care. All Russian Government officials are holding comments until further notice. It is rumored that the over eight turbulent and often chaotic years of social and political transformation Yeltsin presided were just too much for the rebels to put up with. It is said Boris Yeltsin was assassinated within the Kremlin. It also seems the rebels attempts did help Russia at all. Bibliography: .

Stranded On A Desert Island Essays - Desert Island, Symbols

Stranded On A Desert Island Essays - Desert Island, Symbols Stranded On A Desert Island Many people would say that if they went to a deserted island they would probably say that they wouldnt go to one. I would say the opposite if I had to go to one. If I went to a deserted island I would probably bring with me a CD player with CDs, three or four girls and one of my friends, and I would also bring supplies to build a large house. When I get to the island we start to build a very large house before we start to populate the island. After about five years we would have a large population of children. We will cut down trees and build a tree house for the children, and we also would make clothes out of animal skin and leaves. Many people would still say that living on an island like that is barbaric, but it is a way of life. This is a question to ponder, if you were the founder of America like the Pilgrims, what difference would there be except for no Native Americans? Would there be a difference? I dont think there is but it is a good question to ponder. I feel that I should try it sometime, go to a deserted island and stay there for a week, and see how it feels. My feelings on this is that you do not have to be brave to do anything you just have to have the courage and will. I recommend that you try it sometime, it will feel exhilarating.

Why CO2 Isnt an Organic Compound

Why CO2 Isn't an Organic Compound If organic chemistry is the study of carbon, then why isnt carbon dioxide considered to be an organic compound? The answer is because organic molecules dont just contain carbon. They contain hydrocarbons or carbon bonded to hydrogen. The C-H bond has lower bond energy than the carbon-oxygen bond in carbon dioxide, making carbon dioxide  (CO2) more stable/less reactive than the typical organic compound. So, when youre determining whether a carbon compound is organic or not, look to see whether it contains hydrogen in addition to carbon and whether the carbon is bonded to the hydrogen. Past Methods of Distinguishing Between Organic and Inorganic Although carbon dioxide contains carbon and has covalent bonds, it also fails the older test for whether or not a compound could be considered organic: Could a compound be produced from inorganic sources? Carbon dioxide occurs naturally from processes that are definitely not organic. It is released from volcanoes, minerals, and other inanimate sources. This definition of organic fell apart when chemists started to synthesize organic compounds from inorganic sources. For example, Wohler made urea (an organic) from ammonium chloride and potassium cyanate. In the case of carbon dioxide, yes, living organisms produce it, but so do many other natural processes. Thus, it was classified as inorganic. Other Examples of Inorganic Carbon Molecules Carbon dioxide isnt the only compound that contains carbon but isnt organic. Other examples include carbon monoxide (CO), sodium bicarbonate, iron cyanide complexes, and carbon tetrachloride. As you might expect, elemental carbon isnt organic either. Amorphous carbon, buckminsterfullerene, graphite, and diamond are all inorganic.

HR Questions Essay Example | Topics and Well Written Essays - 750 words

HR Questions - Essay Example Organizations have actually embarked a great deal of changes and expectations from the work force, which has quickened the role of HRM. Three tends that are changing the function of HRM are change management, strategic planning and training and management. These roles have relatively changed a great deal because of economic and technological changes, diversity and increasing demographics and organizational restructuring. For instance, considering socio-political polices which were considered as non-central to HRM are now doing strategic planning. Similarly, change management has to be undertaken by carefully allocating diversity within the organizations as people from different backgrounds and nationalities have become part of organizations. Q2- Describe the differences between internal equity comparisons and external equity comparisons, and explain their consequences on the organization. External equity comparisons are one, when an employer decides to pay wages to his or her work fo rce according to the pay rates implemented by other employers in the market place. For this reason, employers are expected to measure the labor markets to get an idea of how he or she will have to design wage plan. On the other hand, internal equity comparisons occur when an employer decides to pay wages to the employees, according to the nature of job, i.e. the more the work performed by a worker, the more wages he or she will earn. External equity comparisons may result in higher wages being paid to the employees, even if they have not put sufficient input in performing their assigned jobs. Whereas, internal equity comparisons create an environment, where the employer and employees both have fair portion of the money they earn for their efforts at work place. Q3- Discuss comparable worth by (1) defining it and (2) citing four potential problems in its implementation. Comparable worth is an idea, which entails that each worker should receive equal wages, regardless of the gender. C omparable worth is also known as pay equity and it allows an employer to pay equal amounts to different job titles according to their worth for the employer. The biggest problem with comparable worth is that the jobs performed by female workers are usually undervalued or do not have significant impact on the operational capacity of the organization. Moreover, implementing such systems would cause disturbance among male workers, as they will be performing tougher tasks and receiving the same amount as women. Male workers might also raise their voice against this gender discrimination. From social perspective, the individuals might also see it as an act of inequality and denial to the idea that every individual should be treated equally, regardless of the gender. Q4- Describe five reasons why merit pay programs may not help organizations increase their overall productivity. Q5- What are some issues of procedural justice that might arise in administering merit pay? In any company setup where rewards are offered by the management to employees they tend to assess these rewards on the basis of two distinct dimensions, which are namely distributive and procedural. Distributive dimension is related to the evaluation of the value of reward they have received; whereas procedural dimension is related to the assessment of the process, which is adopted by the management to decide the value of reward. Important aspects of procedural justice that may arise in administering merit pay may include 1) whether the manager or supervisor performs his duties ethically 2) whether the manager allow opportunity to employees to express their viewpoints and actually takes them into consideration 3) whether uniform standards

Mount Diablo Essay Example | Topics and Well Written Essays - 750 words

Mount Diablo - Essay Example My family and I might as well have been a part of the tribe known to be the earliest inhabitants of Mount Diablo - the Miwok ("The Miwok"), which means people. We may have belonged to one of the tribelets that lived in villages in close proximity to the creeks, streams and caves of Mount Diablo. With this, we could have called ourselves Volvon, the great Miwok tribe. ("Bay Miwok of Contra Costa County") As part of this remarkable tribe, comprised of about a hundred natives or more, we built houses made from indigenous materials such as tules and willow branches. Our houses were domed-shape with the walls formed by vines and twigs which were woven through willow branches and then covered with tule bundles. ("Bay Miwok of Contra Costa County") As a means of subsistence, the men of our tribe hunted down deer, elks, antelopes, rabbits, ducks, geese and rodents to provide meat for the families. In the same way as our houses were built, the men of Volvon utilized natural resources as armaments of bows, arrows, spears and nets. The strings of four-foot long bows were made from plant fibers or animal tendons. On the other hand, the arrows and spears were made from hardwood, while the nets for catching smaller animals are of grass fibers. Our village could have been situated near bodies of water surrounding Mount Diablo. As such, the men of the tribe also went fishing using spears, basket traps, snares and nets. To make the day's catch more palatable to our taste, meat was roasted over the open fire and seasoned with salt. ("Bay Miwok of Contra Costa County") With the early forms of society, the women of our tribe stayed near their homes and looked after their children. Aside from this, the women, with their children tagging along, also gathered plants for food. The tribal diet primarily constituted of acorns harvested from oak trees densely scattered in Mount Diablo. For the acorn to be cooked as mush or baked into bread, the women of the Volvon tribe painstakingly processed their bountiful harvest. ("Bay Miwok of Contra Costa County") I stood watching as the women went about this tedious task. To start off, acorn shells were cracked open in order to get the kernel. This would be repeatedly done until enough kernels have been gathered ("Bay Miwok of Contra Costa County"). These kernels were placed on grinding holes seen as indentions in the rocky outcrops. The holes found on large rocks near caves and water sources, which can still be found in Mount Diablo until now, might have served this purpose (Elliot). After this, the kernels were pounded using a pestle or stone hammer until they turned to powder or what is called the "acorn flour." To wash away the bitter taste of the acorn, the "acorn flour" was placed into shallow baskets and thoroughly rinsed. ("Bay Miwok of Contra Costa County") Once the rinsing is done, the "acorn flour" was mixed with water in a tightly woven basket. Subsequently, the small stones, which were gathered by the village children, were heated in a fire until they become scalding. The red-hot stones would then be dropped into the basket containing the mixture of "acorn flour" and water. The mixture was continuously stirred to a creamy

Analysis for Expansion of Starbucks

Analysis for Expansion of Starbucks Introduction: The history of Starbucks starts in Seattle in 1971.Three friends Jerry, Zev Siegal, and Gordon Bowker who all had a passion for fresh coffee, opened a small shop and began selling fresh roasted , gourmet coffee beans and the brewing and roasting accessories .The company did well, but things began to change in 80s. First Zev Seigal sold out in 1980.Yet at that time, Starbucks was largest roaster in Washington with six retail outlets. In 1981 a plastics salesmen noticed the, number of drip-brewing thermoses that Starbucks was buying from Hammerplast, the manufacturer that he represented. A brief history of Starbucks: Starbucks has always been the place to find the worlds best coffees. But in 1971, you would have had to travel all the way to out first-and at that time, only store in Seattles first Pike Place Market. 1970s : The first Starbucks opens. The name comes from Herman Melvilles Moby Dick, a classic American novel about the 19th century whaling industry. The seafaring name seems to be appropriate for a store that imports the worlds finest coffees to the cold, thirsty people of Seattle . 1980s: Howard Schultz joins Starbucks in 1982. While on a business trip in Italy, he visits Milans famous espresso bars. Impressed with their popularity and culture, he sees their potential in Seattle. Hes right after trying lattes and mochas, Seattle becomes coffee-crazy 1990s: The demand for great coffee allows Starbucks to expand beyond Seattle, first to the United States, then further a field. After becoming one of the first companies to offer stock options to its part-time employees, Starbucks becomes a publicly traded company. 2000s: The Starbucks phenomena continues. At the time of writing Starbucks has more than 15,000 locations across the globe. In addition to our excellent coffees and espresso drinks, people now enjoy Tazo tea and Frappuccino and ice blended beverages. Howard Schultz: In 1982 Baldwin hired Schultz as a new head of marketing and shortly thereafter sent him to Milan to attend an international housewares show in Italy. Schultz went to Verona and had his first cafe latte. But he observed something more important than the coffee. The cafe patrons were chatting and otherwise enjoying themselves while sipping their coffees in the elegant surroundings. It was an aha moment as inspiration struck. A great idea : Schultz describes that moment as epiphany, why not create community gathering places like the great coffee house of Italy in the united States? Could the old world meet the new world? If it succeeded , it would be marketing genius. By 1983 the marketing manager had a vision of recreating the magic of romance behind the Italian coffee bar and wanted to test out the concept of selling the espresso by the cup. II Giornale and Starbucks go their separate ways : When Starbucks coffee is opened its sixth store in downtown Seattle, the coffee was a hit , it was an immediate success. Schults, however branched out on his own and opened a coffee house named Italys largest newspaper , The Daily or II Giornale., Two months later , the new store was serving more than 700 customers a day , and it was selling 300 percent more than the Starbucks locations. Sell out : This is my company now. In 1987 the owners of Starbucks coffee company decided to sell their coffee business , along with the name, to a group of local investors for $3.7 million. Schultz raised the money by convincing investors of his vision that they could 125 outlets in the next five years. He also changed the II Giornale bare- breasted mermaid logo into a more socially acceptable figure. The company name changed from II Giornale to Starbucks, and finally he converted the six existing Starbucks, roasting shops into elegant , comfortable coffee houses. The era of growth : Starbucks coffee history was just beginning to take shape. Starting from a base of 17 store in 1987, the company expanded rapidly to other cities: Vancouver, Portland and Chicago. By 1991 Starbucks has also expanded into the mail-order catalogue business and licensed airport stores and further into the state of California. In1992 the company went public, and after the intial offering of public Starbucks continued to grow at a phenomenal pace that no one had ever seen in the coffee world before. By 1997 the number of Starbucks coffee stores grew tenfold, with location in United States, Japan, Singapore. Other business extension : Not satisfied enough with just a store house coffee, Starbucks expanded several other products and brand extensions. Offering Starbucks coffee on United Airlines flights Selling premium teas through Starbucks own Tazo company. Using the internet to offer the people the option to purchase Starbucks coffee online. Distributing whole bean and ground coffee to supermarkets. Producing premium coffee ice cream wit Dreyers. Selling CDs in Starbucks retail stores. The Starbucks shows how the once small regional roaster, selling coffee beans, became an international corporation with with more than 9000 locations in 34 countries serving 20 million customers or more a week. In fiscal 2004 , Starbucks reached a record 1,344 stores worldwide. 2. Objectives And vision: Commitment to safety and customer service. Low unit cost. Strong branding. Strong corporate culture. To increase the loyalty with the average customer visiting the company at least twice a week . By the year 2011 the consumer under thirty years of age should account for 35% of total sales. Increase in the target market without detracting from older consumers. To become the preferred coffee house established for the age group of the under thirties. To increase the net profit margin to 12.5 %. To increase the profit level by 15% per annum over the next ten years. Mission Statement: Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles as we grow 3. Features Of Starbucks : Instant Coffee: This is not instant coffee as you know it .this is a rich , flavourful Starbucks coffee in an instant . Starbucks had found a way to offer a truly great cup of coffee that u can prepare by just adding water. Other instant coffees taste flat and lifeless. Its made with the highest quality, ethically sourced 100% Arabica beans. The magic is in a proprietary, all natural process that we spent years perfecting. We micro grind the coffee in a way that preserves all of their essential oils and flavour. No other company takes this step, and it makes all the difference. Sales And Expansion: Starbucks always choose beautiful location and atmospehere where people can enjoy their coffee. It opened its first locations outside Seattle waterfront station in Vancouver, British Colombia and Chicago, Illinois, that same year. At the time of its initial public offering on the stock market in 1992, Starbucks has grown to 165 outlets. International Expansion: Starbucks is serving for all the coffee lovers in many countries in the world. Currently Starbucks is present in more than 55 countries across the globe. Fair Trade: In 2000, the company introduced a line of fair trade products of the approximately 136,000 metric tons (300 million pounds) of coffee Starbucks purchased in 2006, about 6 percent was certified as fair trade. 4. Marketing Strategy Of Starbucks: Starbuckss marketing strategy involves positioning the local Starbucks outlet as a third place(besides home and work) to spent time, and the stores are designed to make this easy and comfortable. The cafe section of the store is often outfitted with comfortable stuffed chair. There are ample electrical outlets providing free electricity patrons using or charging their portable music devices or laptop computers. Most stores in U.S and some other markets also have wireless internet access (although this access is not free, as it is in some independent coffee shops). The company is noted for its non-smoking policy at all it outlets, despite its prediction that this would never succeed in markets such as Germany, where there are otherwise few restrictions on smoking. Outlets in Vienna and Mexico city, which have smoking rooms separated by double doors from coffee shop itself, are the closest company has come to making an exception. According to the company, the smoking ban is to ensure that the coffee aroma is not adulterated. The company also asks its employees to refrain from wearing strong perfumes for similar reasons. Starbucks generally does not prohibit smoking in outside seating areas. Starbucks generally does not offer promotional prices on its products. It has a reputation for having pricey drinks, though as of early 2006 Dunkin doughnuts charged even more for a large cup of coffee ($1.95 vs. $1.80 at Starbucks). In late 2006, Starbucks announced that it would raise prices by $0.05 USD, at the beginning of new fiscal year, October 2, 2006. 5. SWOT Analysis: Strengths Revenue targets: Starbucks corporation is a very profitable organisation, earning in excess of $600 million in 2004. The company generated revenue of more than $5000 million in the same year. Brand Awareness: It is a global coffee brand built upon a reputation for fine products and services. It has more than 10000 cafes in almost 55 countries. Leading company: Starbucks was one of the top Fortune Top 100 companies to work for in 2005. The company is respected employer that values its work force. Strong Ethics and Mission: The company has strong ethical values and mission statements as follows, Starbucks is committed to a role of environmental leadership in all facets of our business Locations: Starbucks coffee shops locations are at convenient places like library, shopping malls and etc. Weakness Pricing: Pricing of Starbucks are higher as compared to the competitors. Business spreading: The organisation has a strong presence in the United States of America with more than three quarters of their cafes located in the home market. It is often argued that they need to look for a portfolio of countries, in order to spread business risk. Lack of internal focus: Starbucks lacks in internal focus as its focuses too much on its expansion. Control on stores: Starbucks have less control on stores outside the U.S, and also ever increasing number of competitors in the market. Dependant on retail market: The organisation is dependant on a main competitive advantage, the retail of coffee. This could make them slow to diversify into other sectors should need the arise. Opportunities Added opportunity: Starbucks are very good at taking advantage of opportunities. In 2004 the company created a CD-burning service in their Santa Monica (California USA) cafe with Hewlett Packard, where customers create a own music CD. Fair Trade Products: New products and services that can be retailed in their cafes, such as fair trade products. Market penetration: Entry into Asian market like Pakistan, India, Bangladesh and also this market penetration is done even in several International countries. Global Expansion: The Company has the opportunity to expand its global operations. New markets for coffee such as India and the Pacific Rim nations beginning to emerge. Co-Branding: Co-branding with other manufacturers of food and drink, and brand franchising to manufacturers of other goods and services both have potential. Threats Coffee cost: Starbucks are exposed to rises in the cost of coffee and dairy products. Customers Choice: Who knows if the market for will grow and stay in favour with customers, or weather another type of beverage or leisure activity replace coffee in future? Copy cat brands: Since its conception in Pike Place market, Seattle in 1971, Starbucks success has lead to market entry of many competitors and copy cat brands that pose to potential threats. Coffee pricing: Starbucks have variation in coffee prices in developing countries Security: Security risk at crowded places can also be one of the major threat. 8. Porters Five Forces The food or beverage industry is one of the growing industries today. A company need to analyse both macro and micro-environmental factors. Porters five forces ,model helps the companies to have an edge over rival companies and help to better understand the current market. Porters five forces are the internal factors that have a direct impact on the current market and helps to affectively compete in the market place. The threat of intensity of industry rivalry The threat of the entry of new competitors The threat of substitute products or services The bargaining power of Suppliers. The bargaining power of customers (buyers) The threat of intensity of industrial rivalry: Small speciality coffee shop chains and independent coffee shops Costa, Nero in Europe; Caribou coffee, Van Houtte, Peets Coffee and Tea company in Canada and USA. McDonalds McCoffee Dunkin Donuts Nestle? The threat of new competitors: Starbucks has a very strong brand name which is built over a period of time. Any new competitor into coffee business need to invest lot of money for advertising and marketing to get set in the market. Economies of scale high economies of scale are required to compete with the already established companies. Distribution channels the top retailers have established powerful global distribution channels. Well known brand names and difficult distribution. The threat of substitute products or services: Choosing less expensive alternatives than the luxury coffee that Starbucks offers. Other substitutes of the coffee are the caffeinated soft drinks. The bargaining power of suppliers: Fair Trade. It ensures that the coffee farmers would be paid fairly for their crops Increasing number of speciality coffee buyers. Supply and price can be affected by multiple factors in producing countries, including weather, political and economic conditions. The company buys coffee using fixed-price and price to be fixed purchase commitments, depending on the market conditions, to secure and adequate supply of quality green coffee. Expansion: The Starbukcs will have power on its suppliers by how much the Starbucks expansion is done The bargaining power of buyers: Buyers play a significant role in the Porters forces and this scenario has a great advantage. Buyers are the individual consumers who do not buy large quantites and do not have any influence over the price. Presence of substitutes. No switching costs. High risk of backward integration. 7. Marketing Mix Strategy The Starbucks brand, marketing mix is kept value with very good upshot. The steadiness of the product goes well with its price for very good products, the place are known as beign very comforting for customers apart from if the free way is next door. The atmosphere is so peaceful for customers. The product, price, place, promotion show evenness in the reputation of being a clean and upmarket coffee shop. Price: The amount of money a buyer must give to the seller for a specific quantity of the product is the price of that product and usually consumers use this as an indicator of quality (Dalrymple parsons, 1986). Price and quality determines the value of the product. When launched, Starbucks was expensive and was positioned in accordance with that. They always tried to deliver the high value promised to the consumers. They bought the quality beans, gave effective and efficient training staffs, and moreover, made an atmosphere to enjoy coffee, meet fellow people and take a break from the busy life. These all justify and their pricing and show how price supported their positioning. Product: Starbucks tried to positioned themselves as a premium product in the coffee industry by creating a high standard, introducing innovative products and providing excellent service. Schultz knew how perishable the coffee was and they take care on coffee control, and hence carefully they monitored each step of coffee production. Usage of non-fat milk and introduction of Frappuccuino made a significant presence in the balance sheet of Starbucks. Moreover, they provided seasonal offerings such as strawberry and cream Frappuccuino in summer and ginger bread latte in Christmas, were introduced. Gradually food items such as cookies, pastries, salads, sandwiches made they way into the stores. Place: Distribution channels link the organisations product or service to its consumers; and in a producer consumer channel, as in the case of Starbucks maintaining personal relationship with the customers in significant (Brassington pettitt 2000). As demand grew, these store clusters made them able to manage the increase traffic and to keep their competitive position. In the same way they took care about the service provided in the stores. Howard Schultz aimed to unlock the romance and mystery of coffee in coffee bars, and he knew how important the role of baristas in achieving that. Baristas experience in engage the customers was the heart of Starbucks experience. Thus they differentiated in the market by constantly providing higher quality service. Promotion: All marketing activities that attempt to stimulate buyer action or sales of a product can be considered as a promotion (Shrimp, 1977). Starbucks used to organise a big community event prior to the opening of its stores. Artworks are designed to boast the each citys personality and it was used on commuter and T-shirts. They also recruit local ambassadors from new partners and to customers to promote their brand. They dint use advertising but they used those funds for acquiring key locations. Starbucks tried to establish a national dominance before other speciality coffee bars into the picture. 8. PESTLE Analysis: PESTLE analysis stands for Political, Economical, Social, Technological, Legal and Environmental analysis. PESTLE analysis provide macro-environmental factors that a company has to tale into consideration. It is useful as strategic tool for understanding maket growth or decline, business position and direction for operations. Legal and Political factor: The factors that include the stability of country in which Starbucks purchases its coffee and other raw goods. Coffee is grown in some pretty dicey areas. Also they proclaim to be environmental friendly, so they have to cosider how to protect the brand aspect in everything they do form increasing the shade of share grown and organic coffee, for providing a living wage that makes it to individual farmers, to have production techniques with low pollution rates. Right now, Starbucks has two action suits pending since 2001. The law suits entitled Carr Vs Starbucks and shields Vs Starbucks are challenging the status of Starbucks California store managers and assistant managers as exempt employees under California wage and hour laws. Starbucks also only imports all their coffee beans, so possibly threats could include a change in import laws. The change in the status as far as imports could greatly affect numerous areas of production for the company. For example if it cost more to import or the process is made more difficult the result could ultimately change in price, which would affect the level of consumption for Starbucks coffee. Economic factors: Economic factors are an important aspects that concerns the nature and direction of the economy in which the firm operates. Since the relative affluence of various market segments will affect the consumption patterns, companies must take this into consideration when planning its strategy. The companys net revenue increased from $1.3 billion fiscal 1998 to $ 1.7 billion in fiscal 1999 due primarily to the companys store expansion program and comparable store sale increases. As a part of its expansion strategy of clustering store in existing markets, Starbucks has experienced a certain level of cannibalization has been justified by incremental sales and return on new store investments. This cannibalization, as well as increased competition and other factors, may continue to put downwards pressure on the companys comparable store sales growth in future periods (www.Starbucks.com). Social Factors As a result from the economic factors Starbucks closely following their objectives, the company has installed a list of principles that further outline the companys willingness to make sure that its affect on the environment is as positive as possible. These principle are stated as: Understanding of environmental issues and sharing information with our partners. Developing innovative and flexible solutions to bring about change. Instilling environmental responsibility as a corporate value. Measuring and monitoring each our progress for each project. Encouraging all partners to share in our mission. Recognizing that fiscal responsibility is essential to our environmental future. The importance of these guidelines is further illustrated by the companys mission to show leadership towards environmental issues. Starbucks does not just rest on its laurels, it demonstrates through participating and organising activities such as neighbourhood clean-ups. Further examples of the companys action towards friendliness include the recycling and reusing of resources in order to enhance the lives of the people around the world (www.Starbucks.com). This illustrates the integrity of the company as they can sometimes sacrifice the opportunities if they dont follow the company stands for. In addition to the waste reduction, Starbucks also aims to reduce energy usage and once again demonstrates this by doing energy audits and then using the result to change store design or procedures so that they save as much as energy possible. Technological factor: Starbucks has developed a web-site that allows its customers to buy speciality items and coffee directly through internet. Consumers can also research products, look up current financial info, current Starbucks store location and also see answers to some of the sites most frequently asked questions. Coffee in Starbucks is made with 4 special but simple fundamental steps, firstly, use the right proportion of the coffee to water. Second the brewing process is short: third, use flesh, cold water heated to just off the boil; fourth, use fleshy ground coffee. Customers besides having coffee and flesh food in the shop. Starbucks also provides to go service and bottled which have different tastes like hazel nut, mocha, vanilla, caramel, etc. All those beverages are flesh food are handcrafted and may be customized. Environmental Factors: Starbucks has a wide range of business activity. These activities help company to use numerous channels of product distribution. With the company operating in many locations worldwide environmental factor plays a major role in marketing decisions. Each distribution channel affected differently and the companys flexibility in the marketing plan allows the company to adjust their strategies to meet the needs of the environmental factors. Starbucks provides a work environment treating others with respect and dignity. The company embraces diversity as an essential component in the way Starbucks does business. Starbucks believe that the company should enthusiastically satisfied customers all the time and contribute positive to our communities and our environmental and recognise that profitability is essential to our future success (Starbucks.com, 2008). Starbucks owns and operates its own facilities, warehouses and retail stores giving the company control of product design, shipping and receiving. The companys strategy is to sell premium products and pricing the products as high as the market will allow. Starbucks brand awareness is very important and by introducing new products developing new distribution channels. Starbucks is one of the leading company in sales of coffee and coffee products in the domestic and global markets. The companys management policies have allowed Starbucks to grow and prosper as an organisation. 9. Ansoff Matrix Ansoff matrix allows companies to explore ways to grow business with existing products or services and new products in existing and/or new markets. This helps companies decide what action should be taken. Ansoff matrix has four combinations: Market Penetration Product development Market development Diversification Market penetration: Market penetration is done when a company penetrates a market with the current products. It is important to know that the market penetration strategy begins with the existing consumers of the organisation. Market development: This occurs when the market you are analysing make some sort of change or advancement. Using the Starbucks example, market development has occurred over the past couple of years as customers are becoming more health conscious. Preferences are moving toward different types of teas/drinks and customers are demanding more healthy alternatives. These factors have aided to market development, with different franchise popping up, such as Argos tea, which become direct competitor to Starbucks. Product Development: In response to the market development mentioned above, Starbucks is introducing new product developments in order to compete with companies aiming to offer customers more health conscience drink options. Enter the new product, Skinny lattes and low fat/calorie syrups at Starbucks. Diversification: Due to the saturation of U.S. coffee market, and the decreasing of their gross profit margin, Starbucks has started to move from having a concentrated business strategy to a diversification strategy. Starbucks has realised that once a market matures that it is too risky to b concentrated, and we agree that they should keep diversifying their business product lines in an effort to stay profitable, and competitive. They should diversify into products such as candy, bagels, and other food related products. Conclusion Starbucks has been increasing its debt every year, and at a pace that is faster than their assets are growing. This is why we chose the firm to slow down its expansion and its focus more on marketing their products. In such a saturated market as the one that they are in Starbucks needs to focus on increasing consumer awareness and to decrease debt as much as possible. In closing we believe that Starbucks can become even more profitable if they slow down their expansion and concentrate on the stores that they already have open. Starbucks, its brand and products are at the maturity stage of product life cycle(PLC). Change in a more and more competitive market is essential The Perfect Blend will give Starbucks a new, unique and future oriented brand image. (www.docstoc.com) 9. Starbucks Future: Name president for European operations Mark McKeon will be responsible for strategic entry and growth into Europe. Plans to open at least 400 stores during 2000. Enhancing information systems Starbucks submitted plans to build or renovate at least 10 stores around the world. These store are designed or redesigned around green building principles. This puts Starbucks in line to meet its mandate to have all new stores be LEED certificate by the end of the year. The company began converting all lights in its stores to LED technology in 2010. Starbucks estimates that 1,000 stores have undergone the lighting retrofit. The company expects this change significantly reduce its energy consumption. Starbucks bought enough renewable energy certificates to have 25% of its electricity generated by clean energy sources. The company has a goal having a 50% of electricity produced by renewable energy in 2010. 10. Recommendations Revamp the employee reward system Large percentage of staff are under the age of twenty. Benefits package focuses on medical, dental, and vision care, as well as employee stock options. Outside of hourly wage, and semiannual raises, there are few monetary rewards. Tighten focus on creating the Third Place environment. Site has a very high employee turnover rate Manager Promoted to a another site in hopes of improving their poor performance Site has very poor handicapped accessibility Conditions of restroom in each of our visits was poor and no baby changing area. Focus Profitability Measures On More Than Just Staffing Store is underperforming some high margin product segments Too high focus on minimizing direct labour as a key to achieve profitability Focus on high-margin items and profitable add-on sales By increasing pastry sales by 33%, store would realise a $16K increase in contribution.