Market Theories Investments Seminar Table of Contents Introduction 3 Castle in the Air Theory 3 Firm Foundation Theory 3 Effects of the Market 3 Market Theories 5 The Tulip-Bulb Craze 5 Today’s “Tulip-Bulb” Craze, the Dot-Com Crash 5 Conclusion 6 Introduction Castle in the Air Theory The Castle in the Air theory was introduced by John Maynard Keynes, an well known economist and successful investor of the 1930s. It was Keynes’ theory that the keys to investing
structure is defined as the particular environment of a firm, the characteristics of which influence the firm’s pricing and output decisions. There are four theories of market structure. These theories are: • Pure competition • Monopolistic competition • Oligopoly • Monopoly Each of these theories produce some type of consumer behavior if the firm raises the price or if it reduces the price. The theory of pure competition is a theory that is built on four assumptions: (1.)There are many
and maximize the firm’s value. Therefore it becomes important for the managers to understand the theories of capital structure. The main reason why capital structure decisions are significantly vital is that it helps minimize the firm’s weight average cost of capital (WACC) through adjusting the return rate of debt. As a result, it maximizes the wealth of shareholders. Glen and Pinto supported this theory by stating that the ratios of debt and equity play an essential part in firm’s financial decisions
down by different theories. While the standard theory concentrates on market structure and strategic behaviour, the Austrian School focuses on market dynamics and entrepreneurship whilst the post- Keynesian school directs its attention to the areas surrounding dominant firms and administered prices. This essay will attempt to compare and contrast Austrian and post-Keynesian criticism of the standard neoclassical view of the competitive process. ‘The neoclassical theory of the firm considers four main
There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than external financing which is due to adverse selection, asymmetry
Introduction The relationship between capital structure and firm value has been discussed frequently in the literature by different researcher accordingly, in both theoretical and empirical studies. It has also been discussed that whether the firm has any optimal capital structure that has been adopted by an individual firm, or whether the proportions of debt usage is completely irrelevant to the individual firm value. A firm can choose a mix of three modes of financing i.e. issuing shares, borrowing
foreign direct investment theories is mainly concern the three theories which are market imperfections theory, international production theory and the internalization theory. The market imperfections theory was said that the firm seeks the market opportunities at overseas and determines which is suitable to have an investment in order to achieve the competitive advantages. This can be advantageous for the firms due to firms can produce the homogeneous products and the firms can able to enjoy the same
which are formed by the nature and size of business firm. Capital is raised by the help of several sources of funds. If the firm maintains adequate and proper level of investment capital, this will earns high profits to the company and this can be provided more wealth to its share holders. MEANING OF CAPITAL STRUCTURE Capital structure is a mix of long term source of fund it may be debt and equity form of capital to the firm. It is a proportionate of debt –equity funds towards
1958 and it was a groundbreaking model in corporate finance. The M&M theorem on capital structure claims that in an efficient market and in the absence of taxes, bankruptcy costs and asymmetric information, the value of a firm is unaffected by how it is financed. That is, how the firm decides to raise capital, whether it is by taking on debt or by using existing equity, does not affect the value of the company. Market Timing and Capital Structure Article by Baker and Wurgler (2002) discusses equity
Public Justice Theories and Their Implementations In The Legal Field In observing the legal field, and interning at a law firm for the past three months, it has become clear that when the equity theory, exchange theory, expectancy theory, and need theory are implemented correctly, they can lead to the successful running of a law firm. With the implementation of these theories employers are rewarded with a law firm that is profitable and produces happy clients and associates. Throughout the duration
Den Bulcke, 2009). However, many theories have been advanced to account for the decision-making process that MNCs undertake in relation to FDI. The purpose of this paper is to explain the two main theories – internalization theory and OLI eclectic paradigm theory – and to critique these in relation to some of the other conceptual models that have been advocated. One of the most well accepted models of FDI is Buckley and Casson’s (1976) internalisation theory, who developed a model of MNCs and
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality. The decisions around capital structure lie
assurance on the part of every investor as to future investment decisions of the firm and the future profits of every corporation. Because of this assurance, there is no need to distinguish between equity share and debenture as a source of finance[7]. Relevance of Dividend Policy: Lintner (1956) in his study argued in favor of relevancy of dividend policy as the dividend are the relevant factors to determine the value of the firm. Gordon(1962) use dividends as the method of valuation for corporation which
looks at the decisions of firms and individuals as they try to make themselves as well off as possible, and how these decisions can influence the market and even the entire economy within which they operate. Although these theories are very useful in explaining why consumers make the decisions they make, there are still some limitations of these theories that need to be taken into consideration. This essay will outline some of these limitations including: static theories, imperfect knowledge, number
One of the most common ways for a firm to operate or finances its assets is capital structure. Capital structures refer as a combination of equity, debt and hybrid securities that used in the firm operation. In a perfect market, transaction or bankruptcy cost, inefficient information and taxes will not exist. Therefore, Modigliani and Miller created a theory of capital structure in a perfect market. The use of capital structure is important as it affect the firm profitability. Financial decision
investment is likely to be tight. From the beginning of the investment, the cost management might conduct for the best efficiency. Nowadays, firms work with not only domestic industries but also international suppliers. The channel of business opportunities has been developed widely. Global business interaction seems to bring about the relationship between the firm and supplier how to make a profit effectively. In addition, it might be possible to say that this circumstance leads to enhance the domestic
Maximizing Profits as the Main Goal The traditional theory (neoclassical) assumes that firm’s primary objective is to maximize profits. That is if the firm is owner controlled. This assumption is based on that firms makes the output and price decisions. Also, that firm takes all necessary actions to earn the greatest profit possible. The managerial theory assumes firms do not necessarily act in order to maximize profits. The basic tenet behind this is the separation of ownership from management
Within Organization Economics and Management Theory, two largely separate streams of outsourcing literature dominate the discussion and have been applied extensively: the governance perspective (New Institutional Economics, especially Transaction Cost Economics) and the competence perspective (Resource- and Knowledge-Based View) of the firm (Foss 1993). We argue that neither theory has sufficient explanatory power with respect to outsourcing failure. Within the New Institutional Economics, Transaction
2. Theory The theory section is focused on the internationalization process of SMEs and the network model of internationalization. Thereafter, the second part reviews the literature related to business networks including the key terms related to networking. 2.1 Internationalization in networks Internationalization Internationalization is broadly defined as the process of geographical expansion in international economic operations across national country’s borders (Manolova et al., 2010; Ruzzier
experts have constructed different theories to interpret the effects of a dividend policy to the society. But these theories are contestable since they are not tested in the real world. Managers’ decision on determining the size and time of a company’s next dividend payment is also important for both companies and shareholders. They will affect the company to distribute an appropriate amount of dividends in a right time. This essay will discuss whether theories of dividend payment, such as the dividend