• A dynamic theory of the use of management control systems in achieving alignment of strategic investment decisions with strategy

      Slagmulder, Regine (1995)
      This research explores how management control systems are designed and used in an organization to help align strategic investment decisions with the firm's strategy. It contributes to the stream of accounting research whose purpose is to shed light on the relationship between management control and strategy. The focus of this research is on the strategic investments in manufacturing plant and equipment because the capital investment in this area constitutes an important business activity over which effective control must be exercised to ensure the best possible quality of the firm's investment programmes.
    • Capital regulation of financial institutions, the role of ratings and the tension field between regulation and economic reality

      Van Laere, Elisabeth (2011)
      The capital regulation of financial institutions, the role of ratings and the tension field between regulation and economic reality Over the past decade, the economic environment has been characterised by high-profile business scandals and failures, in which different company stakeholders were involved. In July 2007, the world entered the most profound and disruptive crisis since 1929. Initially originating in the US, it has evolved into a deep and complex crisis at global level, resulting in significant economic damage. Lack of market transparency, the abrupt downgrading of credit ratings and the failure of Lehman Brothers have initiated a global breakdown of trust. In autumn 2008 interbank markets shot down, creating a liquidity crisis that is still having a profound impact on the cost and availability of credit, financial markets and the macro-economy as a whole. Both government and Central Banks have taken numerous measures to address the systemic risk and to refuel the economy. However, it has become clear that the regulatory framework and measures in place were insufficient to tackle the crisis. As such, regulatory and supervisory financial authorities are currently confronted with major challenges. In light of these recent developments, this research contributes to the fundamentals of capital regulation of financial instructions and the use of internal and external ratings in that respect. Chapter 1: On the road to a safer banking system? Theory and evidence on capital regulation in Europe Traditionally capital requirements have been the foundation of regulation for banks. To protect banks against failure and to prevent an economic crisis due to contagion and systemic risk, different stakeholders want banks to maintain a certain level of capital. Rating agencies, supervisors and debt holders want higher capital to support solvency, shareholders want lower capital to boost profitability and even the behaviour of other banks might impact the target capital ratio. As a result of these conflicting interests, bank capital needs to be optimized with as a key purpose to internalise the social costs of potential bank failures. The capital adequacy requirements in place have been found inadequate, and as a reaction major steps to move the banking system are currently being taken. Taking into account these evolutions, it is interesting to know the extent to which recommendations have been adopted and whether the reforms have been and are perceived to be beneficial to the European banking sector. Based on guidance from academics, supervisors and policy makers, we have put together an extensive survey that is used for interviews with various bank managers and chief risk officers from European banks. The first chapter of this PhD presents new evidence on where European banks are with respect to capital regulation and on how the future road to a safer banking system should look like. By commenting on differences and similarities between the financial institutions we have questioned,we describe the present state of affairs with respect to Basel II implementation, regulatory and economic capital calculations and Basel III expectations. In doing so, we also address another objective of the Basel Committee, the creation of a level playing field, albeit in an indirect way. Banks believe that reinforcement and the realization of effective supervision is the main criterion for the realization of a more stable financial market. This confirms the important role our research assigns to the supervisor. One of the major difficulties will be to make a reliable estimate on how far the capabilities of supervisors go. Another difficulty on the subject of supervision is that it is still a national responsibility that will not be centralised very quickly for political reasons. Furthermore, we believe Basel III entails a lot of improvement, but in line with the academics and opinion leaders and regulators and supervisors, we feel that Basel III should look more comprehensively at the risks. We entered a financial crisis because assets that were full of worth suddenly became worthless. With this in mind, regulators should reconsider their way of treating assets on a bank s balance sheet in a more detailed way. Chapter 2: The development of a simple and intuitive rating system under Solvency II Another type of financial institution that has been both victim and cause in the financial crisis are the insurance companies. Notwithstanding the fact that insurance companies are very important players in financial markets who are involved in many credit risk exposures and as a consequence are also prone to high levels of uncertainty and solvency issues, literature on the topic is scarce (Florez-Lopez, 2007). Due to the Solvency II Directive, also insurers are currently being confronted with new regulatory requirements that promote internally developed risk models. This evolution emphasises the importance of credit risk assessment through internal ratings. In light of this new prudential regulation, and taking into account the limited data and modelling experience of insurance companies and the scarcity of academic research on insurance companies, the second chapter of this dissertation suggests a Basel II compliant approach to predicting credit ratings for non-rated corporations and evaluates its performance compared to external ratings. In developing the model, broad applicability is set as an important boundary condition. Even though the model developed is fairly simple and maintains a high level of granularity, it gives high rates of accuracy and is very interpretable. Chapter 3: Analyzing bank ratings: key determinants and procyclicality While upgrading financial regulations and supervision in order to prevent future crises, many authorities are being confronted with the fact that risks taken in the process of financial intermediation are difficult to observe and assess from outside the bank. In the absence of tight regulations, this opaqueness exposes banks to runs and systemic risk. In order to reduce this lack of transparency, credit rating agencies (CRAs) provide information that can help various stakeholders to evaluate the credit risk of issues and issuers. Even though CRAs have been criticized a lot in the latest crisis, for many observers of financial markets, credit ratings continue to play an essential role. Morgan (2002) shows that Moody s and S&P have more split ratings over financial intermediaries, suggesting that banks are more difficult to rate because of their opaqueness. This additional lack of transparency is linked to the banks asset base and their high leverage, which create agency problems and further increase uncertainty over their assets. So far the research linked to ratings of financial institutions is rather limited. The third chapter of this dissertation presents a joint examination of how different factors influence the assignment of S&P and Moody s long term bank ratings using a unique data set covering different regions, bank sizes, and bank types. In doing so, we include new bank and country specific variables. Furthermore, we include measures of the business cycle in our analysis to determine whether long term bank ratings tend to be related to the cycle after conditioning on a set of variables. Using annual data on US and European banks rated by S&P and/or Moody s, we find that the bank ratings of both agencies exhibit a different sensitivity to the business cycle. Finally, we check our findings on a sample of banks that are rated by both rating agencies while controlling for potential sample selection bias. Our findings are highly relevant for various bank stakeholders, who often tend to assume that Moody s and S&P have equivalent rating scales and rating processes. This paper shows clear evidence that this is not necessarily the case. Moody s and S&P seem to have different rating determinants, different sensitivity towards the business cycle and behave differently when rating banks that are rated by both of them. We believe that the findings of this dissertation are highly relevant for various bank stakeholders and academics. As such, we hope that the outcome of our three chapters will be used in further discussions on the regulation of financial institutions, the role of ratings and rating agencies and finally, on how to reduce the tension field between theory, regulation and economic reality.
    • Distressed M&A and the role of m&a in corporate restructuring

      Bruyland, Evy (2013)
      The global financial and economic crisis have led to a moderation in global M&A activity. The large M&A deals have disappeared and deal volume has fallen. Nonetheless, M&A remains a core part of business growth. Firms continue to look for acquisitions that allow them to capture a new customer base, technologies and products, access new markets and increase market share. While some years ago the M&A market was characterized by growing firms with a healthy track record, transactions involving distressed firms are increasing. Many investors, managers, advisors and academics are familiar with traditional mergers and acquisitions but little is known about distress-related M&A. However the surge in restructurings and failures has marked the M&A landscape and triggered a growing interest in these type of transactions. The practitioner-oriented and academic literature provide us with some insights but the risks and benefits of such transactions remain largely ambiguous. The goal of this dissertation is to increase our understanding of transactions involving troubled firms.
    • Essays on firm valuation and value appropriation

      De Maeseneire, Wouter (2005)
      Sophisticated valuation techniques such as adjusted present value and real options, attract ever-increasing attention from theory and practice. A huge number of papers in the academic field provide various applications of these advanced tools, for instance valuing research and development, strategic alliances and real estate. Real options have also been used for valuing mergers and acquisitions. However, notwithstanding the rich knowledge about valuation models applicable for valuing takeovers, there remains a need to further develop theories about the distribution of the value creation between the target s and acquirer s shareholders. In other words, what part of the value creation can the acquirer appropriate? Strategic management literature underlines the impact of possessing unique capabilities, and both the strategic and financial literature emphasize the role of information asymmetry in explaining value appropriation in acquisitions. In this dissertation both simple and more complex valuation models are discussed, and we propose a real option-game model that analyzes the acquirer s value appropriation. In our valuation and value appropriation models, the specific resources and capabilities of the evaluator are considered. By explicitly taking the acquirer resources into account in the valuation analysis, and by developing a new application of a combined option-game model, this PhD thesis is taking a step in further bridging the gap between finance theory and strategic management.
    • International venture capital investors and their portfolio companies in Europe

      Devigne, David (2013)
      Many companies including Apple, Facebook, Google, Microsoft and Starbucks may not have existed, or may not have developed to the same level and size they have without venture capital (VC) funding. VC investments are in essence long-term, illiquid, high-risk, hands-on, privately held, minority equity investments in high-growth-potential companies initiated and managed by professional investors. While these specific characteristics explain the benefits of VC’s proximity to portfolio companies (PCs), paradoxically the fraction of non-domestic investments has been increasing significantly in the last two decades. The increasing occurrence and disadvantages of investing across borders hence raises the question of how international VC firms manage the additional difficulties and what their impact is on PCs. The focus of my dissertation lies on the differential impact of VC origin (i.e. cross-border, branch and domestic VC firms) in three main aspects of the VC investment cycle. In a first step, VC firms carefully select potential investment targets based upon the future prospects. Second, VC firms typically do not only provide financial resources but also engage in time consuming post-investment monitoring and value adding activities. Finally, in contrast to other investors, VC firms are not interested in taking permanent equity positions in their PCs. Instead, they exit their investments after a five to seven year holding period. In a first study I examine the impact of VC origin on the mutual matching decision combining preferences of both investors (i.e. supply side) and entrepreneurs (i.e. demand side). From a supply perspective, results show that cross-border VC firms have a higher probability to invest with local investors, larger investment syndicates and more experienced investors. We further demonstrate that investing through a local branch allows foreign VC firms to exhibit the same investment behaviour as domestic VC firms. These results thereby exhibit that local and more resourceful co-investors or establishing a local presence mitigate the disadvantages linked to foreign investing. From a demand perspective, findings show that less developed companies have a higher probability to match with domestic VC. Moreover, seed stage companies in which only cross-border VC firms co-invest have a higher probability to attract a local VC firm as opposed to an additional cross-border VC firm. These results display that entrepreneurs dynamically assess their companies’ resource gaps and consequently target VC investors with specific geographic origins based upon the required resources. My second study concentrates on the role of domestic and cross-border VC in PCs’ growth. Findings demonstrate that companies initially backed by domestic VC investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In contrast, companies initially backed by cross-border VC investors exhibit higher growth in the medium term. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border VC investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border VC investors can play as their PCs grow and thereby require different resources or capabilities over time. Finally, in a third study I analyse how cross-border, branch and domestic VC firms behave when PCs do not meet initial expectations. Results show that domestic investors have a high tendency to escalate their commitment to a failing course of action. In contrast, cross-border investors terminate their investments efficiently, even when investing through a local branch. This is explained by cross-border investors having more limited access to soft information, a lower social involvement with the project and a lower embeddedness in the local economic and social environment, which are all factors that contribute to lower escalation of commitment. Local branches of cross-border investors are further shielded from escalation of commitment through structural safeguards. Domestic investors may hence benefit from mimicking cross-border investors’ behaviour.
    • Topics in financial economics

      Matthys, Thomas (2018)