CORPORATE
FINANCE
B A 60 7
MA. LUZ I. SANCHEZ
INTERNATIONAL
FINANCE
MANAGEMENT
INTERNATIONAL FINANCE
MANAGEMENT
• Finance - refers to the art and science of handling and managing money, as well as other
assets (Haripriya, Praveena, & Megavarthini, 2019).
• Nowadays, financial managing is also globally relevant, and is referred to as international
finance.
• International finance records and monitors not only the local finance of the nation but also
that of the international or global level.
SCOPES OF INTERNATIONAL FINANCE
MANAGEMENT
• According to Haripriya et al (2019), international finance management has scopes in financial
decision, investment decisions, and dividend decisions.
 The first scope is financial decision, because international finance management deals
with making decisions and ensuring that the decisions made will be beneficial to the
countries involved. The main objective of the finance decision is to have optimum capital
structure.
 The next scope is investment decision. One has to decide where to invest and more
important thing how much to invest. These decisions are to be taken by gut feeling and
proper thinking as it may decide the faith of the concern.
 The last scope is dividend decisions. The dividend is a portion of profits that is to be
paid to shareholders as per share purchased by them. The finance manager has to decide
according to the position of the concern and shareholder’s interest as both of them are
of high importance.
INTERNATIONAL FINANCE
MANAGEMENT
• To overcome certain challenges to the company, understanding the market environment plays a
crucial role.
• The environment is comprised of the international financial system, the foreign
exchange market, and the foreign country’s environment.
• International financial system is composed of two segments, namely the official part which
refers to the accepted code of behavior by governments that are part of the international
monetary system, and the private part, which refers to the international banks as well as
other multinational financial institutions that are part of the international money and capital
markets.
INTERNATIONAL FINANCE
MANAGEMENT
• Despite the challenges that one must take into consideration, there are also gains from the
international financial market.
 better allocation of capital
 increased prosperity
 growth and development
 Confidence/energy
FINANCIAL
DISTRESS
FINANCIAL DISTRESS
• The term "financial distress" is used in a negative connotation to describe the financial health
of an enterprise that is confronted with a temporary liquidity shortage and with difficulties
resulting in a failure to meet financial obligations within their payment terms and to their full
extent (Michalkova, Adamko, & Kovacova, 2018).
FINANCIAL DISTRESS
• According to Mitroff (2001), there are eight basic causes of financial deterioration.
 economic causes
 information causes
 physical causes
 human resources
 reputation-defamation
 criminal nature
 natural disasters
FINANCIAL DISTRESS
• Slatter & Lovett (1999) also divided the causes of business financial health deterioration into
endogenous and exogenous ones.
 Endogenous causes - weak management and its mistakes, insufficient financial control,
poor management of working capital, high expenses, insufficient marketing, etc.
 Exogenous causes - negative changes in market demand for the company´s products,
competition, and change in input commodity prices in an unfavorable direction
FINANCIAL DISTRESS
• Based on the general economic theory, Lizal (2002) defines three causes or models that can
detect the deterioration of the company financial health: the neoclassical model, the financial
model, and the corporate governance model.
• Altman and Hotchkiss (2006) mention other causes of deterioration in the financial health of
enterprises (external factors) :
 chronically problematic sectors of economy (e.g. agriculture, textile industry, etc.)
 deregulation of key sectors (e.g. airlines, financial services, healthcare, energy);
 high real interest rates;
 international competition; and
 excessive capacity between sectors.
FINANCIAL DISTRESS
• Other, especially financial reasons for corporate failure, are as follows:
1.
Industry sectors
2.
Interest rates
3.
Competition
4.
Debts to equity ratio
5.
Deregulation
6.
Growth rate
CORPORATE
RESTRUCTURE
CORPORATE RESTRUCTURE
• Corporate restructuring is defined as the process involved in changing the organization of a
business. It can involve making dramatic changes to a business by cutting out or merging
departments.
• It is also a non-recurring exercise for organizations but has a lasting impact on the business
and other concerned agencies due to its numerous considerations and immense advantages
(The Institute of Company Secretaries of India, 2014).
CORPORATE RESTRUCTURE
• According to Rai Technology University, corporate restructuring involves restructuring the
assets and liabilities of corporations, including their debt-to-equity structures, in line with their
cash flow needs in order to:
1.
promote efficiency
2.
restore growth,
3.
minimize the cost to tax payers.
CORPORATE RESTRUCTURE
• Objectives of corporate restructuring:
1.
orderly redirection of the firm's activities;
2.
deploying surplus cash from one business to finance profitable growth in another;
3.
exploiting inter-dependence among present or prospective businesses within the
corporate portfolio;
4.
risk reduction; and
5.
development of core competencies.
CORPORATE RESTRUCTURE
• According to The Institute of Company Secretaries of India (2014), the various needs for a
Corporate Restructuring exercise are the following:
1.
to focus on core strengths, operational synergy and efficient allocation of managerial
capabilities and infrastructure;
2.
consolidation and economies of scale by expansion and diversion to exploit extended
domestic and global markets;
3.
revival and rehabilitation of a sick unit by adjusting losses of the sick unit with profits of a
healthy company;
4.
acquiring constant supply of raw materials and access to scientific research and
technological developments;
5.
capital restructuring by appropriate mix of loan and equity funds to reduce the cost of
servicing and improve return on capital employed; and
6.
to improve corporate performance to bring it at par with competitors by adopting the
radical changes brought out by information technology.
CORPORATE RESTRUCTURE
• There are also several other aspects to consider when corporate restructuring.The
restructuring process requires these to be considered before, during and after the
restructuring:
1.
Valuation & Funding
2.
Legal and procedural issues
3.
Taxation and Stamp duty aspects
4.
Accounting aspects
5.
Competition aspects etc.
6.
Human and Cultural synergies
CORPORATE RESTRUCTURE
• Moreover, there are various types of corporate restructuring strategies:
1.
Merger
2.
Demerger
3.
Reverse Mergers
4.
Disinvestment
5.
Takeovers
6.
Joint venture
7.
Strategic alliance
8.
Slump Sale
9.
Franchising
10. Strategic alliance
CORPORATE RESTRUCTURE
1. Merger - the combination of two or more companies which can be merged together either
by way of amalgamation or absorption.
Mergers may be:
• Horizontal Merger – refers to a merger of two or more companies that
compete in the same industry.
• Vertical Merger – refers to a merger which takes place upon the combination of
two companies which are operating in the same industry but at different stages of
production or distribution system.
• Co-generic Merger – refers to a type of merger wherein two companies are in
the same or related industries but do not offer the same products, but related
products and may share similar distribution channels, providing synergies for the
merger.
• Conglomerate Merger – refers to merger that involve firms engaged in
unrelated type of activities i.e. the business of two companies are not related to
each other horizontally nor vertically.
CORPORATE RESTRUCTURE
2. Demerger - a form of corporate restructuring in which the entity's business operations are
segregated into one or more components. This is usually done to help each of the segments
operate more smoothly, because they can focus on a more specific task after demerger.
3. Reverse Merger - refers to the opportunity for the unlisted companies to become public
listed company, without opting for Initial Public Offer (IPO). In this process, a private company
acquires the majority shares of public company, using its own name.
4. Disinvestment - this means an organization’s action or government selling or liquidating an
asset or subsidiary. This is also known as "divestiture".
CORPORATE RESTRUCTURE
5. Takeover/Acquisition - means an acquirer takes over the control of the target company. It
may also be classified as either a friendly or hostile takeover:
• Friendly takeover – means one company takes over the management of the target
company with the permission of the board.
• Hostile takeover – means one company takes over the management of the target
company without its knowledge and against the order of their management.
6. Joint Venture (JV) - is an entity formed by two or more companies to undertake on a
financial activity together. The parties agree to contribute equity to form a new entity and share
the revenues, expenses, and control of the company.
It is also classified into two:
• Project-based Joint venture
• Functional-based Joint venture
CORPORATE RESTRUCTURE
7. Strategic Alliance – refers to an agreement between two or more parties to collaborate
with each other, to achieve certain objectives while also still being independent organizations.
8. Franchising - may be defined as an arrangement where one party (franchiser) grants another
party (franchisee) the right to use trade name as well as certain business systems and process, to
produce and market goods or services according to certain specifications.
9. Slump sale - means the transfer of one or more undertaking as a result of the sale of lump
sum consideration without values being assigned to the individual assets and liabilities in such
sales.
VI. REFERENCES
• Altman, E., & Hotchkiss, E. (2006). Corporate Financial Distress and Bankruptcy. New Jersey: Willey
Publishing.
• Haripriya, S., Praveena, P. S., & Megavarthini, M. S. (2019). International Finance Management. Online
International Interdisciplinary Research Journal, 1-6.
• Lizal, L. (2002). Determinants of Finanicial Distress: What Drives Bankruptcy in a Transition Economy?
• Michalkova, L., Adamko, P., & Kovacova, M. (2018). The Analysis of Causes of Business Financial
Distress. Advances in Economics, Business and Management Research, 49-52.
• Mitroff, I. I. (2001). Managing crises before they happen: what every executive needs to know about crisis
management. New York: Amacom.
• Rai Technology University. (n.d.). Corporate Restructuring. Bangalore: Rai Technology University.
• Slatter, S., & Lovett, D. (1999). Corporate Tournaround: Managing in Distress. London: Middlesex: Penguin
Books.
• The Institute of Company Secretaries of India. (2014). Corporate Restructuring, Valuations, and
Insolvency. New Delhi: Tan Prints.