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One of the most cited reasons for why firms pay dividends is the free cash flow hypothesis, which is based on the notion that there is a conflict of interest between managers and shareholders.
Salah satu alasan paling dikutip mengapa perusahaan membayar dividen adalah hipotesis arus kas bebas, yang didasarkan pada gagasan bahwa ada konflik kepentingan antara manajer dan pemegang saham.
As indicated by La Porta et al. (2000) that the ownership structure in Thailand is highly concentrated, the figures show that the average shareholding is 56.94 percent for the top five shareholders.
Seperti yang ditunjukkan oleh La Porta et al. (2000) bahwa struktur kepemilikan di Thailand sangat terkonsentrasi, angka-angka menunjukkan bahwa saham rata-rata 56.94 persen untuk lima besar pemegang saham.
Rather than act in shareholders’ best interests, managers could allocate the firm’s resources to benefit themselves (Jensen and Meckling, 1976).
Daripada bertindak dalam kepentingan para pemegang saham, manajer dapat mengalokasikan sumber daya perusahaan untuk kepentingan mereka sendiri (Jensen dan Meckling, 1976).
Following Miller and Modigliani (1961) dividend irrelevance proposition, many researchers have attempted to explain why firms pay a substantial portion of their earnings as dividends if the amount of dividends paid to shareholders does not affect firm value.
Setelah Miller dan Modigliani dividen (1961) tidak relevan proposisi, banyak peneliti telah berusaha untuk menjelaskan mengapa perusahaan membayar sebagian besar pendapatan mereka sebagai dividen jika jumlah dividen yang dibayarkan kepada para pemegang saham tidak mempengaruhi nilai perusahaan.
Of the total shares held by major shareholders, institutional investors (INST) hold a larger proportion (43.46 percent) than individual investors (INDV). However, domestic individual investors (DINDV) hold the largest proportion of shares (35.47 percent) among the four categories of ownership (i.e., DINST, FINST, DINDV, and FINDV).
Dari total saham dipegang oleh pemegang saham utama, investor institusi (INST) memegang proporsi yang lebih besar (43,46 persen) dari investor perorangan (INDV). Namun, investor individu domestik (DINDV) mengadakan proporsi terbesar dari saham (35.47 persen) antara empat kategori kepemilikan (yaitu, DINST, FINST, DINDV, dan FINDV).
The average ownership figure of the top five shareholders reported here is similar to 56.39 percent documented by Limpaphayom and Ngamwutikul (2004) during 1990-1994, suggesting a pattern of high ownership concentration in Thailand over time, but is much higher than 25 percent reported in Demsetz and Lehn (1985) for US firms and 32.94 percent reported in Harada and Nguyen (2011) for Japanese firms
Angka rata-rata kepemilikan atas lima pemegang saham dilaporkan di sini mirip 56.39 persen didokumentasikan oleh Limpaphayom dan Ngamwutikul (2004) selama 1990-1994, menunjukkan pola konsentrasi tinggi kepemilikan di Thailand dari waktu ke waktu, tapi jauh lebih tinggi daripada 25 persen dilaporkan dalam Demsetz dan Lehn (1985) bagi kita perusahaan dan 32.94 persen dilaporkan dalam Harada dan Nguyen (2011) bagi perusahaan-perusahaan Jepang
Following Adjaoud and Ben-Amar (2010) and Baba (2009), free cash flow (FCF) is estimated by cash flows from operations. If dividends are used to mitigate agency problems, firms with higher free cash flows should pay more dividends. On the other hand, if managers expropriate shareholders, the results might indicate a negative relationship between free cash flows and dividends.
Setelah Adjaoud dan Ben-Amar (2010) dan Baba (2009), arus kas bebas (FCF) diperkirakan oleh arus kas dari operasi. Jika dividen yang digunakan untuk mengurangi masalah badan, perusahaan dengan lebih tinggi arus kas bebas harus membayar dividen lebih. Di sisi lain, jika Manajer memasuki pemegang saham, hasil mungkin menunjukkan hubungan yang negatif antara arus kas bebas dan dividen.
I classify shareholdings of major shareholders (Note 1) disclosed by the Stock Exchange of Thailand (SET) into six categories as follows: INST is the percent of shares held by institutional investors (banks, financial institutions, insurance companies, funds, and unit trusts); DINST is the percent of shares held by domestic institutions; FINST is the percent of shares held by foreign institutions;
Cara mengelompokkan pemegang saham pemegang saham utama (Catatan 1) yang diungkapkan oleh Bursa Saham Thailand (SET) menjadi enam kategori sebagai berikut: INST adalah persen saham dimiliki oleh investor institusional (Bank, lembaga keuangan, perusahaan asuransi, dana, dan unit Trust); DINST adalah persen saham dipegang oleh institusi dalam negeri; FINST adalah persen saham dipegang oleh institusi luar negeri;
The main independent variables are ownership structure of Thai firms. TOP is the percent of shares held by the largest shareholder. Following Harada and Nguyen (2011) and Khan (2006), ownership concentration is measured by the percent of shares owned by the five largest shareholders (TOP5).
Variabel independen utama adalah struktur kepemilikan perusahaan Thailand. ATAS adalah persen dari saham dipegang oleh pemegang saham terbesar. Mengikuti Harada dan Nguyen (2011) dan Khan (2006), kepemilikan konsentrasi diukur persen saham dimiliki oleh pemegang saham terbesar lima (TOP5).
The results from this study show that, compared to a firm with an individual as the largest shareholder, a firm with an institution as the largest shareholder is more likely to pay dividends and tends to pay higher dividends. In addition, ownership concentration is found to have a positive effect on a firm’s likelihood to pay dividends.
Hasil dari studi ini menunjukkan bahwa, dibandingkan dengan sebuah perusahaan dengan individu sebagai pemegang saham terbesar, sebuah perusahaan dengan lembaga sebagai pemegang saham terbesar lebih mungkin untuk membayar dividen dan cenderung untuk membayar dividen yang tinggi. Selain itu, konsentrasi kepemilikan yang ditemukan memiliki efek positif pada perusahaan kemungkinan untuk membayar dividen.
For example, Gugler and Yurtoglu (2003) find a negative relation between the largest shareholder’s ownership and divided payout ratio while Truong and Heaney (2007) document a convex relation, i.e., at low levels of shareholding, the relation between dividend payout ratio and the largest shareholder’s ownership is negative but this relationship becomes positive as the levels of shareholding increase.
Sebagai contoh, Gugler dan Yurtoglu (2003) menemukan hubungan yang negatif antara pemegang saham terbesar kepemilikan dan rasio dibagi pembayaran sementara Truong dan Heaney (2007) dokumen hubungan cembung, yaitu, di tingkat rendah saham, hubungan antara rasio pembayaran dividen dan kepemilikan pemegang saham terbesar negatif tetapi hubungan ini menjadi positif sebagai tingkat kenaikan saham.
These characteristics can increase the agency costs of free cash flow and dividend payments are more likely to be used as a mechanism that helps mitigate agency problems. Further, Limpaphayom and Ngamwutikul (2004) document that, of the shares owned by the five largest shareholders of Thai firms, the majority is held by institutions, with a substantial average holding of 27 percent of total outstanding shares.
Karakteristik ini dapat meningkatkan biaya agen arus kas bebas dan pembayaran dividen lebih mungkin untuk digunakan sebagai sebuah mekanisme yang membantu mengurangi masalah badan. Lebih lanjut, Limpaphayom dan Ngamwutikul (2004) dokumen itu, saham yang dimiliki oleh lima pemegang saham terbesar perusahaan Thailand, mayoritas dipegang oleh lembaga-lembaga, dengan memegang rata-rata 27 persen dari total saham yang luar biasa besar.
First, according to La Porta et al. (2000), Thailand is characterized as a country with low shareholder protection and the ownership structure of Thai firms is highly concentrated. Second, it is documented that Thai firms are mostly owned and controlled by individuals, families, and related partners (see, e.g., Aivazian et al., 2003; Claessens et al., 2000; Wiwattanakantang, 2001).
Pertama, menurut La Porta et al. (2000), Thailand ditandai sebagai negara dengan pemegang saham rendah perlindungan dan struktur kepemilikan perusahaan Thailand sangat terkonsentrasi. Kedua, didokumentasikan bahwa perusahaan Thailand kebanyakan dimiliki dan dikendalikan oleh individu, Keluarga, dan terkait mitra (Lihat, misalnya, Aivazian et al., 2003; Claessens et al., 2000; Wiwattanakantang, 2001).
Based on the agency theories, recent studies have focused on examining the effects of governance standard and ownership structure on corporate dividend policy. For example, La Porta et al. (2000) find that firms in countries with low corporate governance and poor shareholder protection tend to pay low dividends and that firms with high ownership concentration tend to make higher dividend payments.
Berdasarkan teori-teori badan, penelitian terbaru telah berfokus pada meneliti efek dari pemerintahan standar dan struktur kepemilikan pada kebijakan perusahaan dividen. Sebagai contoh, La Porta et al. (2000) menemukan bahwa perusahaan-perusahaan di negara-negara dengan tata kelola usaha yang rendah dan perlindungan pemegang saham miskin cenderung membayar dividen rendah dan bahwa perusahaan dengan konsentrasi tinggi kepemilikan cenderung membuat pembayaran dividen yang lebih tinggi.
To mitigate agency problem, Easterbrook (1984) and Jensen (1986) suggest that firms return free cash flows to shareholders by paying dividends. Easterbrook (1984) argues that dividends require managers to raise external funds more often and thus are more monitored by outsiders.
Untuk mengatasi masalah badan, Easterbrook (1984) dan Jensen (1986) menunjukkan bahwa perusahaan kembali arus kas bebas kepada para pemegang saham dengan membayar dividen. Easterbrook (1984) berpendapat bahwa dividen memerlukan manajer untuk mengumpulkan dana eksternal yang lebih sering dan dengan demikian lebih dipantau oleh orang luar.
CONTOH SURAT LAMARAN KERJA POSISI ACCOUNTING DAN FINANCIA February 28, 2015 Personnel Manager PT. Ungu Jl. Hayam Wuruk 25 A Jakarta 15677 Dear Personnel Manager : I believe my 10 years of accounting experience might be an asset to PT. Ungu, and therefore I have enclosed my resume for your consideration. I seek a stable opportunity and strongly identification with Carolina Herrera. I was fully responsible for the preparation of monthly consolidated financial statements for management and public reporting, and the Annual Report to Shareholders- and shared responsibility with the Corporate Controller in maintaining operating units compliance with the PSAK. When can we set up an interview? I may be reached at 021 442-5770. Your consideration is greatly appreciated. Sincerely, Your Name
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Reebok and Adidas The athletic shoe industry in the United States was an $8.25 billion market in 2003. By 2010, industry revenue had hit $21.9 billion with sales of over 362 million shoes a year [Ibis World]. The four largest companies (Nike, New Balance, and AdidasReebok) controlled 70 percent of that market [Cassidy 2004]. The industry grew from almost nothing in the early 1980s to a global powerhouse. Reebok (ticker: RBK) can trace its history back to Joseph William Foster, who made some of the first spiked running shoes by hand in London—in 1895. In 1958, two grandsons started a companion company known as Reebok. But, the modern version was born in 1979 when Paul Fireman saw the shoes at an international trade show and negotiated for North American distribution rights. At $60 a pair, the shoes were the most expensive running shoes in America [www.reebok.com]. In 1982, Reebok helped launch the aerobic dance industry with a shoe specifically targeted to women. With explosive growth, the company went public in 1985. Growth con- tinued, supported by the Step Reebok program in 1989. By 1995, the company had grown from $50 million in sales to over $3 billion in a decade. Reebok’s 1993 sales of $2.9 billion placed it second behind $4.4-billion Nike, Inc. The nearly $1 billion increase in sales from 1989 to 1993 indicates Reebok’s success in gaining market share. Paul Fireman, president and CEO of Reebok Paul Fireman founded Reebok in 1979 and remains the largest shareholder. From 1986 to 1990, Fireman was one of the ten highest paid executives in the United States. Under his control, Reebok sales grew from $1.5 million in 1980 to $1.4 billion in 1987. In 1988, Fire- man relinquished the CEO role to spend time working on other projects, including develop- ing golf courses in Puerto Rico and Cape Cod. In the late 1980s and early 1990s, Reebok suffered from two weak marketing campaigns (“Reeboks Let U.B.U.” and “Physics behind the Physique”). More importantly, the aerobics fitness craze began to subside. Women aero- bics shoes were a major component of Reebok sales, so the sales decline hit them especially hard. In 1992, Fireman returned as CEO. Tom Trainer, CIO Tom Trainer joined Reebok in 1991 as the chief information officer (CIO). He noted that his role “is to enable the kid in Reebok to stay fresh and creative while also allowing the grown- up corporation to compete in global markets” [Pulliam and Pereira 1995]. To accomplish these objectives, Trainer implemented videoconferencing, computer-aided design, the In- ternet, and laptops for the sales force. The goal was to improve communications among em- ployees, faster development of products, and more effective sales presentations. Before Trainer joined Reebok in 1991 as vice-president of information systems, the information systems area was less than up-to-date, with no global information system or way to look at data. Communications, primarily by telephone and fax, between the manu- facturing partners and worldwide distribution network were slow. Turnaround on new products was equally slow. This was a critical problem because Reebok is a fashion-oriented business with three product cycles a year in footwear and five in apparel. While sales repre- sentatives from Nike were walking in with laptops to display their lines, reps from Reebok were walking into offices with bags of shoes. Trainer’s early days were spent accomplishing short-term projects that got him points with the board of directors. He fired six of eight senior staff. He kept 85 percent of the old programming staff, retraining many of them. In addition to his IS responsibilities, Trainer drove the re-engineering process in the company. To do so, he spent a great deal of time on the road, building relationships with Reebok executives around the world. He also studied Sony Corporation to learn ways that it meets customer needs. To accomplish his re-engineering, Trainer formed five megaprocesses that streamlined procedures for production, sales and marketing, research and development, adminis- tration, finance, and distribution. In 1992, he presented a four-year, $75- million strategic information systems plan to Reebok’s executive committee. The board approved it on the condition that it give Reebok strategic advantage. To improve its communications, Reebok installed a privately designed architecture for voice, video, and data. Reebok communicates not only with its worldwide distribution base but also with its ad agency and other suppliers. IT currently developed an electronic image library to enable product shots to be distributed to every country where Reebok does business. The system dropped the new product lead time from six months to three, and, in some cases, 30 days. Before the new ordering system was installed, orders were first printed out locally and faxed to the international headquarters in London. London would take all of the faxes and send them to the United States to be entered in the mainframe. Different standards for shoe sizes from different countries added to the delay. Once the information was entered in the mainframe, production and manufacturing would evaluate the orders. To improve this process, Trainer developed a software package called Passport. Passport rationalizes product codes and shoe sizes. It also gives small distributors and sub- sidiaries access to the system through personal computers. It can also function as a module by plugging into larger systems. Laptops were also given to the entire Reebok sales force. When orders were paper based, replacing material in a shoe to change its price from $95 to $65 might take 30 days and mean a lost sale. With the new system, these changes could be made almost automati- cally. Salespeople are able to check inventory and look into special orders. They can also access two years’ catalogs with full motion video and sound clips of Reebok’s advertise- ments. Lotus Notes is used to store the catalogs with mail links through cc:Mail. Another Reebok initiative is to use electronic data interchange with 10-15 percent of its retailers. This commitment enables goods to be tracked through shipping companies, customs, and warehouses. Hoover, a data capture system to “suck in” information from da- tabases around the world, is linked to customer databases that track what customers have ordered and what they want. Reebok experienced some problems implementing the new systems. Particularly difficult was the effort to integrate the Canadian operations into the U.S. business operation. Concentrating development and support in the United States did not take into account the specifics of invoicing under the Canadian law. This mistake added time and resources that had not been budgeted to the project. Reebok early 1990s In the early 1990s, facing continuing declines in the aerobics’ market, Fireman changed the focus and tried to expand into other areas. To a large extent, Nike was killing the competi- tion—largely by focusing on star athletes and spending more than 10 percent of its revenue on marketing. In the early 1990s, Fireman knew that he would have to compete directly in the sporting world [www.reebok.com]. His basketball market strategy copied a page from Nike, and relied on the new “Shaq Attaq” line supported by Shaquille O’Neal from the Or- lando Magic. While sales did increase, they did not reach the 25 percent levels predicted by Mr. Fireman—reaching only 20 percent market share. Additionally, Fireman estimated in 1993 that the outdoor-wear division would sell $350 million worth of shoes in 1995. Outdoor sales fell far short of the goal, reaching about $110 million. More importantly, expenses skyrocketed, increasing from 23.6 percent of sales in 1991 to 32.7 percent in June 1995. Experts say shoe company expenses typically average about 27 percent of sales. Investors blamed most of the increase on the cost of endorse- ments. Nike Late 1990s At the same time that Reebok was suffering, Nike reported a 55 percent jump in firstquarter 1995 earnings, with revenue increasing by 38 percent. Part of the increase was from expanded international sales, with a 34 percent increase in orders from France and Germany. Sales in Japan increased by 65 percent. Nike also expanded sales of tennis shoes, partly through endorsements from tennis stars Andre Agassi and Pete Sampras. In the first quarter of 1995, revenue from tennis shoes increased by 92 percent with a 42 percent in- crease in orders. At the same time sales were increasing, Nike managed to decrease its expense ratio. Selling and administrative costs dropped to 22.3 percent of revenue from 25 percent in the prior year. Much of the improvement came from an improved distribution system, including a new warehouse in Belgium that consolidated operations from 30 different facilities in Eu- rope. Beginning in the late 1990s, the footwear industry lost its luster. However, Nike revenue increased from $3.4 billion in 1998 to $9.0 billion in 2000 to $9.5 billion in 2001, to over $10 billion in 2003 [annual report]. In 2001, Nike installed a customized retail supply chain system from i2 Technologies, Inc. The implementation, including ties to other ERP systems, did not go well, and Nike faced a serious inventory reduction and misplacement. Nike management was disappointed in the problems, and Nike chairman questioned: “This is what we get for $400 million?” Reebok Late 1990s In 1990, Nike surpassed Reebok in footwear sales. In the year ending in August 1995, Nike had $4.7 billion in sales compared to Reebok’s $3.37 billion. One of the largest battle- grounds was the retail Foot Locker stores owned by Woolworth Corp. The 2,800 retail stores sell 23 percent of U.S. sport shoes, representing $1.5 billion of the $6.5 billion U.S. market for athletic shoes. Sales at Foot Locker stores account for almost 60 percent of the 1$ billion U.S. sales gap between Reebok and Nike. Insiders note that the problems between Reebok and Foot Locker go back to the days when Reebok shoes were selling rapidly. Foot Locker wanted concessions on price and wanted Reebok to make some styles exclusively for them. Reebok was busy selling to other outlets and was unwilling or unable to alter its production and distribution systems. Nike was eager to build custom products for Foot Locker and offered a dozen products exclusively at the chain. Ex-employees at Reebok note that the company had additional problems providing samples and design plans to Foot Locker, claiming that “Sometimes the samples would come in late and sometimes not at all—which got Foot Locker mad. . . . Sometimes, fashions last less than six weeks; if you don’t get it in right then, there goes a major sale.” Mr. Fireman responded by trying to improve relations with Foot Locker. He also offered to begin building exclusive styles for Foot Locker, but the introduction of the products was uncertain. He also noted that Reebok was working hard to cut costs and improve its order and information tracking system. One problem that remained was that the clerks at Foot Locker stores tended to push the Nike brands harder. By September of 1995, major shareholders were getting upset with Reebok management. One of the leading outsider shareholders, Glenn Greenberg of Chieftain Capital Management, noted that “The major shareholders have no confidence in the management of this company. If it was up to us, they would have changed horses or sold the company a long time ago.” Reebok and The Internet Like other shoe manufacturers, Reebok relies heavily on celebrity endorsements. Signing Alan Iverson (NBA rookie of the year in 1996) and Venus Williams (tennis sensation) gave Reebok greater visibility in 2000. In 2000, Reebok also increased its visibility by sponsoring the Survivor television show with humorous ads. Their Web site followed these themes. In 1997, Reebok installed Radnet Inc.’s WebShare groupware system to maintain its Web site. The system has tools for e-mail, discussion groups, and bulletin boards. The goal was to add interactivity to the site and build a community of users. Marvin Chow, Reebok’s director of interactive marketing noted that “If you just try and use the Web to sell them products, something is missing” [Cole-Gomolski 1998]. More importantly, the system makes it easy for Reebok’s managers to add content. They can add data and pass it to salespeople and re- tailers automatically using a workflow engine. The company used QuickTime from Apple to create CDs for its salespeople. Using Macromedia on its Internet site, the company was able to update pricing, styles, and even new photos and displays on the fly. The data was downloaded directly to the sales laptops [Dillon 1998]. Interestingly, the Web site is largely independent from the IT department. Roger Wood, vice president of electronic commerce at Reebok reports directly to the CEO and con- trols his own technology budget. He observes that “I am able to take down and build up fea- tures (of the Web site) without some IT overlord telling me what is good or bad” [Cole- Gomolski 1999]. In 2000, Reebok stopped selling shoes direct from its Web site. It was concerned about competing with the traditional retail outlets. So now the site focuses on image, tech- nical information about products, and then directs consumers to the retail partners. Enterprise Systems From SAP Facing weak sales, Reebok began focusing on reducing costs in the late 1990s. Net sales dropped from $3.6 billion in 1997 to $2.9 bil- lion in 1999 to about $2.8 billion in 2000. Worse yet, from 1999 to 2000, gross margin declined from 38.5 percent to 37.9 percent. Income (Million $) Year 2003 2002 2001 2000 1999 Revenue 3,485 3,128 2,993 2,865 2,900 Net Income 157 126 102 81 11 In 1995, Trainer went to Eli Lilly [Information Week 1995]. The company ultimately replaced him with Peter Burrows as chief technology officer (CTO). Burrows knew that he needed to replace the aging, custom software that was being used to run the company. The problem was that nothing existed. In late 1995, he sent a dozen Reebok workers to an SAP R/3 course—the goal was to show SAP that its system could not handle the complex details of the apparel industry. Most products are created by hundreds of contract suppliers, gen- erally in Southeast Asia. Product designs change constantly, and the company has to coor- dinate shipments to thousands of customers. Ultimately, Burrows convinced SAP to develop a custom add-on system called the Apparel Footware Solution (AFS) module. To convince the company to spend the money, VF Corp., the company that makes Lee and Wrangler jeans, also signed on to the project. The two companies helped design the specifications for the new software. The project was far more complex than SAP anticipated, and the initial version was three months late. Leroy Allen, the CIO at VF commented that “I think SAP underestimated the amount of change that had to be made to standard R/3” [Steadman January 1999]. Burrows was counting on the system to handle the major transactions at Reebok, so he could avoid the necessity of rewriting the old applications to become Y2K compliant. By May, 1999, the system was still not fully operational. Among other problems and bugs, the system was too slow to check product inventories and raw material stocks when retailers and distributors placed orders. Burrows noted that “We’re not out of the woods, but SAP is responding. It’s not something we’re taking lightly, and neither are they” [Steadman May 1999]. In the meantime, another 60 apparel and footwear makers had purchased the sys- tem by early 1999. By 2000, Reebok was running the system in only a couple of divisions, such as golf shoes. The company deferred implementation of the full system until at least mid- 2001. Burrows noted that he was waiting for additional functionality scheduled for Release 2.5 [Steadman 2000]. Despite the problems in getting the software developed, apparel manu- facturers had few other choices. By 2001, Reebok had 115 retail stores running the AFS system. Burrows was pleased with the ability of the system to maintain accurate inventory records for the stores [Mearian and Songini 2001]. In January 2002, SAP shipped Release 3.0 of AFS. With the bug fixes and new features, Reebok continued to rollout the system in its divisions. Burrows planned to gradually implement Release 3.0 over a few years. Burrows continues to push for new features such as a Web-based system to handle business-to-business transactions with suppliers. In 2002, competitor Nike completed rolling out AFS 2.5 to its 5,000 end users [Songini 2002]. Competition and the Future There is no question that the shoe industry is competitive. There is also no question that it is still dominated by Nike. Yet, Reebok has made gains in the mid-2000s. The retro-trend bolstered sales for Reebok when it re-released older models. (It also convinced Nike to buy Converse.) Competition to sign new stars is also intense. Most observers believe Alan Iver- son has significantly boosted Reebok sales. In 2004, Reebok struck a huge note in the inter- national market by signing Yao Ming to market a line of shoes in China. Reebok will also market a line of Yao Ming shoes in the United States [Marcial 2004]. Somewhat surprisingly, Reebok did well in 2003 selling a line of shoes endorsed by Rap stars (Jay-Z and 50 Cent). The shoes were also popular in England [Thomaselli 2004]. On the other hand, Reebok’s 2003 sales gain was also attributed to the feud between Nike and Foot Locker. In 2002, Nike pulled its top products from Foot Locker—trying to negotiate better prices. In November 2003, the companies resolved their problems and Foot Locker again began carrying more Nike shoes. Foot Locker’s clout grew even more in 2004 when it purchased 353 Footaction stores from bankruptcy [Cassidy 2004]. Although Nike is still the strongest seller in the U.S. market, it has struggled to find a management team. In 2006, William D. Perez stepped down after only 13 months as CEO. Reportedly, Perez often clashed with Nike co-founder Philip Knight. Knight promoted Mark G. Parker to the CEO position. The change reminded observers of the situation in 2000 when Mr. Knight returned to the CEO position to replace Tom Clarke as sales fell from 1994 to 2000 [Lublin and Kang 2006]. Adidas In 2005, Adidas-Salomon AG in Germany agreed to purchase Reebok for $3.8 billion. The price represented a 34 percent premium over the existing stock valuation. The sale was closed in 2006. Adidas, a pioneer in the shoe and sporting-goods industries had been strug- gling in the U.S. trying to find a way to compete with Nike. Adidas was largely considered the engineering leader and produced some of the technically best shoes on the market—but it lacked the marketing flash appeal of Nike. For example, the company introduced a $250 running shoe containing a sensor and small motor that enabled it to adjust the tension and support based on the terrain. Shortly after the acquisition was closed in 2006, Paul Fire- man left Reebok [Reebok Web site]. A key element in the decision was Reebok’s appeal in the urban market—due to its embrace of 50 Cent and Jay-Z rappers. Herbert Hainer, CEO of Adidas noted that “we will expand our geographic reach, particularly in North America, and create a footwear, apparel and hardware offering that addresses a broader spectrum of consumers and demographics.” The global market for athletic shoes is about $33 billion and about half of that total comes from America. In 2004 combined, Reebok and Adidas had about 20 percent of the U.S. mar- ket compared to Nike’s 35 percent [Karnitschnig and Kang 2005]. Adidas was formed by Adi Dassler after World War II. It gained attention by creating soccer cleats that helped Germany win the 1954 World Cup
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Investors’ Reaction to the Implementation of Corporate Governance Mechanisms The study investigates the impact of corporate governance on investor reaction. This is the first study till date that addresses this gap in literature. The design of the study comprises of corporate governance, investor reac-tion. Data was taken from 125 non-financial sector of Pakistani companies listed at KSE for the period of 2005-2010. Data was extracted from balance sheet analysis (SBP report), KSE website and annual reports of companies. Correlation (individual and composite) and linear regression tests were applied to validate the out-comes. The results confirm that there is no impact of corporate governance on investor reaction and relationship between them is negative. This implies the inefficiency of financial market where noise trades create sentiment. Corporate Governance; Investor Reaction; Emerging Market Introduction Corporate governance is an important component for profitability and growth of firms through achieving the allocative efficiency, so that scarce funds were transferred to investment projects with higher returns. Generally, efficiency can be achieved if the investment projects offer higher returns as compared to cost of capital . Corporate governance mechanism provides protection to shareholders and other stakeholder particularly investors. Good governance practices help to increase the share prices that could get higher capital. It also facilitates the international investor to lend money and purchase shares in domestic companies . [3,4] investigated the market reaction to corporate governance mechanism. They argued that those firms which were greatly affected from such governance practices reacted more profoundly as compared to firms exhibiting good governance practices. Furthermore,  investigated the market reaction to corporate governance practices. They criticized the governance practices are value destroying as they found abnormal return, reducing in CEO pay, number of large block holders, easiness of institutional investors and presence of a staggered board. Although, researchers scrutinized the market reaction to corporate governance mechanism, but there is no study till date that investigates impact of corporate governance mechanism on investor reaction. So the specialty of this study is to gain the attention of academicians and practitioners by bridging this gap in literature. Two research questions has been addressed which are: Does corporate governance impact the investor behavior? Is this relationship significant across different economies? This study confirms that the corporate governance mechanism impacts insignificantly on investor reaction. This paper is organized in a way that the first section describes the introduction of the study followed by literature review to build theoretical framework. The next one discusses the methodology, followed by discussion of the results and conclusion; the last section explains the managerial implications and future research direction. Literature Review Corporate governance is a “process whereby suppliers of capital (shareholders) attempt to ensure that managers of the firms in which they invest provide a sufficient return. It addresses the agency problem whereby the shareholders (principals) are the ultimate owners of the firm and want to ensure that managers (agents), who are separate from the shareholders, act in the shareholders’ best interests rather than the interests of managers” .  scrutinized the link between measures of corporate governance and stock returns. They highlighted that high governance ranking firms outperform than other port- folios. Moreover, market reacts significantly to governance related information which reflects that good governance does matters to Canadian investors. Similarly,  investigated the price reaction to corporate governance announcements. They confirmed that investors react to these governance practices but the sign of their reaction depend upon the extension and nature of these types of announcements. Moreover,  studied the corporate governance mechanisms and market reaction and liquidity impact. They depicted that market price reaction is significant positive when firm committed for higher transparency and minority shareholder protection in its announcement. Furthermore, shares having voting rights experience stronger price reaction and liquidity enhancement rather than non-voting shares. They suggested that corporate governance mechanism can be effective strategy for countries having weak investor protection provisions. Corporate Governance announcements are important ways for interacting with the investors.  demonstrated the link between corporate governance rating announcements and stock returns of companies. By using event study, they analyzed the 11 top listed corporate governance companies for the period of 2004-2005 and found no relationship between corporate governance and share performance of firms, might be attributable to perception of Thai investors.  scrutinized the link between market reaction to corporate governance regarding to regulatory and legislative actions. They proved that abnormal re-turns relating to corporate governance mechanism are reduction in number of large bondholders, CEO pay, ease of institutional investors to access the proxy method and presence of stagnant board.  studied that how corporate governance would impact the market reaction to earning surprise regarding to post earnings announcements drift. They confirmed the investor ‘reactions both, over-reaction and under-reaction to earnings surprises can create post earnings announcement drift. They investigated for bad governance firms, that investor would under-react to earnings surprises as they believed that earnings surprises might be attributable to firm’s luck rather than its ability. On the other scenario i.e. for good governance firms, they scrutinized that investor would over-react to earnings surprises as they believed that earnings surprises are attributable to firm’s ability rather than its luck.  studied the role of corporate governance in abnormal returns regarding to seasonal equity offerings. They confirmed that investors react positively for companies in which people hold the CEO and chair-man positions. Moreover, investor reacts positively for companies having high outsider members, low CEO ownership and small board size. They highlighted that investors also react positively to seasonal equity offerings by companies having stronger corporate governance mechanism that ultimately reduces the agency problems.  demonstrated the relationship between governance and asymmetric information and other imperfections that usually firm faces. They found that corporate governance is highly related to high market valuation and operating performance. They highlighted that countries having weak legal system are more probable to firm level corporate governance mechanism.  examined the firm announcement that is negatively valued by investor might be attributable to information asymmetry and its adverse features. They also depicted that stronger corporate governance mechanisms experience low price de-cline from the information symmetry, transpiring that strong corporate governance mechanism might mitigate the agency problems.  explored the impact of corporate governance on investment decisions. They proved that strong corporate governance structure can ease the investment decisions. Owner-owned firms get less financial distress and more positive stock evaluation than management controlled firms, reflecting that firms with better corporate governance practices can get positive investor evaluation from investors.  depicted the effectiveness of corporate governance mechanism for increasing capital and Re-search and development investment decisions. They found that higher ownership governance yields greater abnormal returns to capital investment decisions however; higher board governance mechanism yields abnormal returns to research and development investment decisions. Institutional investors play a vital role in corporate governance activities like  examined the institutional investors would impact the corporate governance through analyzing the portfolio holdings of institutions in companies over the period of 2003-2008. They proved that change in institutional investment would bring positive change in firm level governance; however, they did not find any impact of governance on institutional investments. Furthermore, they highlighted that firms having higher institutional ownership could easily terminate poorly performing chief executives and made further improvements.  investigated the corporate governance mechanism and investor protection. They found that investor’s evaluation of investor protection regimes are related to firm-level corporate governance mechanism along with characteristics of their portfolio holdings. They also depicted that firm level corporate governance are attributable to mitigation of agency problems between large and small shareholders, irrespective of weaker investor protection. Furthermore, countries having weak legal structure might be attributable to attract investors through having strong corporate governance regime. The investor preferences for country level investor protection and good corporate governance mechanism are highly related to investment decisions.  investigated that governance-sensitive institutions is related to improvement in shareholder rights. They also confirmed that low turnover institutions with preference for small cap and growth companies are attributable to be more governance sensitive. Furthermore, they suggested that common proxies for governance sensitivity do not measure governance preference clearly.  scrutinized the relationship between governance mechanisms and firm investment choices by using Real Estate Investment Trusts (REITs) as a sample. They highlighted that responsiveness of REITs’ investment opportunities depend upon their corporate governance structures. Moreover, REITs have higher institutional ownership, then their investment opportunities are closely related to Tobin’s q. However, Real Estate Investment Trusts (REITs) may vitiate the effectiveness of internal governance mechanism. They found that information asymmetry diminished by REIT governance. Further-more, they confirmed that high financial incentives for board members along with experienced board members and independent audit committee having financial expertise reduces asymmetric information . From above discussion it can be inferred that corporate governance mechanism impacts the investor reaction positively. Therefore, a proposed hypothesis is. H1: Corporate governance mechanism has a significant impact on investor reaction. Methodology Methodology portion comprises of two sections. One describes the variables, proxies and data collection and other highlights the statistical tests applied on the data. The aim of current study is to investigate impact of corporate governance mechanism on investor reaction. Therefore, data has been collected for the 125 non-financial sector of Pakistani companies listed at Karachi Stock Exchange, for the period of 2005-2010 on yearly basis. Data was extracted from Balance sheet analysis (SBP report), KSE website and annual reports of companies. Variables Corporate governance mechanism has been taken as in-dependent variable and investor reaction has been taken as dependent variable. Equation α = Intercept CG= Corporate Governance IR = Investor Reaction, BS= Board Size, ACI = Audit Committee Independence, OS = Ownership Structure, ε = Error Term. Proxies Corporate Governance Corporate Governance can be measured through four proxies: Board size = Natural log of Number of Total Directors Board independence = Number of Non Executive Directors divided by Total Number of Directors Audit Committee independence = Number of Non Executive Directors divided by Total Number of Audit Committee Members Ownership Structure = Shares held by Directors divided by Total Shares Investor reaction Investor reaction can be measured through stock re-turns. Stock Returns = Natural log of Pn/Po Methodological Tests Correlation test has applied to find out the interrelationship between variables. Linear regressions have applied to check the hypothesis. Result and Discussion Correlation Correlation tests were used to find out inter-relation- ship among Corporate Governance and Investor Reaction. The findings highlight that Investor Reaction (IS). Tables 1 and 2 depict the correlation analysis. Table 1 shows the correlation between variables of corporate governance and investor reaction. It depicts that board size is negatively related to director independence, ownership structure and investor reaction while it is positively related to audit committee independence. Director Independence is positively related to audit committee independence however, it has negative relationship between ownership structure and investor reaction. Audit committee independence is negatively related to ownership structure and investor reaction. Lastly, Ownership structure also exhibits a negative relationship with investor reaction. When correlation test was applied between corporate governance and investor reaction, it highlights that corporate governance has negative relationship with investor reaction. Linear Regression OLS regression was applied for testing the hypothesis. i.e. corporate governance has significant impact on investor reaction. The results of OLS regression have been presented in Tables 3 and 4. When investor reaction was regressed with individual component of corporate governance, it has been seen that there is no impact of corporate governance on investor reaction. The value of R-square is 0.53%[ERROR] which means that this model explains only few factors of corporate governance that affect investor reaction (IR) while 99%[ERROR] are other factors that influence investor reaction (IR). F- statistics is insignificant at 0.94. When investor reaction was regressed with corporate governance, it has been seen that corporate governance is insignificantly negatively related to investor reaction. The value of R-square is 0.16%[ERROR] which means that this model explains only 0.16%[ERROR] of factors of corporate governance that affect investor reaction (IR) while 99%[ERROR] are other factors that influence investor reaction (IR). F-statistics is insignificant at 1.19. Conclusions Corporate governance is insignificantly negatively related to investor reaction. On the basis of these findings, our hypothesis has been rejected. Previous studies confirmed the corporate governance practices provide investor protection, due to which investor invest more in those firms which incorporated corporate governance mechanism in their strategic policy. This study does not support the above justification. One interpretation might be that this study was con-ducted in inefficient market, due to which investor don’t have much knowledge about financial markets. They don’t respond to market rationally. Due to this behavior investor creating sentiment in markets and exploit stock return, Noise trader exploit corporate governance practices as well. In such market corporate governance mechanisms is unable to provide protection to their investors. Managerial Implications Corporate governance has no impact on investor reaction. Therefore, mangers should focus other factors while making their strategic policies to attract their investors, not solely focus on corporate governance Limitation and Future Research In future studies, further variables would be incorporated to investigate the impact of corporate governance on investor reaction. This relationship would be generalized among different economies in order to validate the out-comes. Review of Accounting Gimmicks Called Depreciation Depreciation is a complex, intricate and confusing term in the fields of engineering, social and management sciences. As a result, it has been over used, over stressed, and over worked by the accountants and professional valuers. International Accounting Standard (IAS) 4, qualifies assets for depreciation when assets are used for more than one accounting period, i.e. assets held by an enterprise for production or service, and has economic useful life. Whereas, under Standard Statement of Accounting Practice (SSAP) 12, depreciation is viewed as wearing out, consumption or other loss of value of fixed asset, whether arising from use, affluxion of time or obsolescence through technology and market changes. Complexity may arise when it is viewed as a fall in price, physical deterioration, allocation of cost, fall in value, valuation technique and asset replacement. Intricate and confusion are inevitable when accountants employ various methods of providing for depreciation on the same or similar assets of different life span. These methods may include straight line, reducing balance, sum of the year’s digit, revaluation, annuity, output, sinking fund etc which will definitely give different values in the financial statement. The consequential effect is either to undermine or overstate the reported profit or distributable profit in the hands of the stakeholders, hence the absurdity of the financial reports. It is recom- mended that depreciation should be used with caution especially when the anticipated economic useful lives of the asset is short lived by new technology or passage of time thereby making it extremely difficult to recover or replace the net book value of the asset. Depreciation; Measuring Profitability; Expense Capture; Corporate Performance Measures; Earnings Engineering Currently the theory and practice of depreciation have not generally unified the fixed amount to be charged as annual expenses in the Income Statement and Balance Sheet due to different meanings and computations. Al- though materiality concept affirms that what might be material to one person/company may not necessarily be material to another person/company (Concept of Value). Materiality concept is viewed as fundamental when inclusion, exclusion of a particular item, transaction into or from the financial statement could lead to distortion, misleading and/or debase financial statement anticipated report, meaning and understanding. In order to avoid this confusing nature of any inclusion or exclusion there is the need to explain vividly such aspects in the form of notes to the accounts which gives credence and reliability to the users of financial statement. The word depreciation has been grossly over worked, over used, over stressed and above all has varying senses with different connotations even among intra and inter group disciplines. International Accounting Standard (IAS) 4 and Statement of Standard Accounting Practice (SSAP) 12 view standards in accounting for depreciation as the allocation of depreciable amount of assets over its estimated useful life. Depreciable amount from assets is anchored on its historica