International Finance and Responsible Financial Management Assignment Sample

International Finance and Responsible Financial Management Assignment

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Task 1: Academic Essay

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

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

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

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

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

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

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

References

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

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

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

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

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

Blog Appendices

Blog 1: Financial Investment

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

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

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

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

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

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

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

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

References

Atmaca, S., & Karada?, H. A. (2020). Decision-making on financial investment in Turkey by using ARDL long-term coefficients and AHP. Financial Innovation, 6(1), 1-22.

Campbell, R. (2018). Art as a financial investment. The Journal of Alternative Investments, 10(4), 64-81.

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

HC, R., & Gusaptono, R. H. (2020). The Impact of Financial Literacy on Investment Decisions Between Saving and Credit: Studies on Sharia Bank Customers in the Special Region of Yogyakarta. Journal of Economics and Business, 3(4) 

Blog 2: Core Concept of Corporate Finance

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

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

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

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

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

References

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

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

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

Rissy, Y. Y. W. (2021). Reconceptualizing the Concept of Corporate Governance and its Goals in People's Credit Banks in Indonesia. Yuridika, 36(1), 263-280.

Sertsios, G. (2020). Corporate finance, industrial organization, and organizational economics. Journal of Corporate Finance, 64, 101680.

Blog 3: Financial Ethics

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

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

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

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

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

References

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

Mews, C. J., & Abraham, I. (2017). Usury and just compensation: Religious and financial ethics in historical perspective. Journal of Business Ethics, 72(1), 1-15.

Prayogo, I., & Afrizal, T. (2021). Perceptions of Educators, Accounting Students, and Accountants Public Accountants against Ethics of Financial Statement Preparation (Studies at University and KAP in Semarang). Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences, 4(1), 89-101.

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