治理结构与公司价值——美国与东亚若干经验比较[1]ppt课件

1、Corporate Governance and the Value of Firms-Some Experiences of U.S and AsiaProfessor K.C. John Wei, PhD: (852)-2358-7676; Fax: (852)-2358-1749: johnweiust.hkDepartment of Finance, HKUST and Visiting Department of Finance, Peking UniversityPrepared for CCER, Peking University .Profile of Prof. K.C.

2、John WeiProf. K.C. John Wei received his PhD in Finance at the University of Illinois, Champaign-Urbana, in 1984. He served the University of Mississippi as an Assistant Professor from January 1984 to June 1988. After serving the University of Miami as an Assistant Professor for one year, he moved t

3、o Indiana University, where he served as an Associated Professor from July 1989 to June 1992. Since July 1992, Prof. John Wei has been serving the HKUST Business School initially as an Associate Professor and later was promoted to full Professor. He served as Acting Head of the Department of Finance

4、 from January 2001 August 2002 and February June 2003. Prof. Wei has also been appointed the Director of the Centre for Asian Financial Markets since 1995. He was visiting University of Texas at Austin from September to December 2002 and is currently visiting Guanghau School of Management, Peking Un

5、iversity.With research focuses on empirical research in capital markets, derivatives and asset pricing of Asian and U.S. markets, Prof. Wei has produced a number of high quality papers on these areas. Many of these papers were published in top journals in finance and have made considerable contribut

6、ions to the finance literature. He is an author of four books (in Chinese) on Hong Kong stock and warrants markets and Taiwanese stock market. In addition, Prof. Wei is a regular column writer for the Hong Kong Economic Journal, a local newspaper specialised in financial news.On the consultancy acti

7、vities, Prof. Wei has helped Hang Seng Bank to develop a personal financial planning model called “SmartInvest, and HSBC to develop a financial planning model, called “Rule-Based Investment Solutions. He also conducted a consultancy project initiated by HKSAR for APEC and a few projects for Hong Kon

8、g Stock Exchange. Prof. Wei have been involved executive teaching for HKUST, Peking University, Hong Kong Stock Exchange, Chinese provincial government officials, general corporate executives, Xiean Jassen, Daimler/Chrysler, China Mobile, Aspire, and BenQ. .Value creation and business strategiesValu

9、ationCreationQijiaCEOXiushenZhiguoPingtianxiaManagement teamAssets in placeGrowth opportunityCapitalPeopleManagement skillsVisionIntegrityCorporate governanceIncentivesRestructuringCompetitive advantagesM&A (external)Investment (internal) (ROICWACC)R&DEquityDebtCentral bankCommercial banksInvestment

10、 banksMutual fundsInsurance companiesValuation methodsDCFComparative measureROAInvestorsTimingCost of capital (WACC)Financial engineeringCBCapital marketsObjective/StrategyInvestor behaviorGreed and fearCognitive or heuristic biasFocus vs Diversified (Cisco vs GE)OEM vs BrandLow vs high end.Value cr

11、eation via financial strategiesDividend policy:ReinvestmentShareholder valueInvestment decision:Growth optionsFinancing decision:WACCCorporate governance:Asymmetric informationApproaches tovaluationMergers &AcquisitionsValue creationROIC WACCDCF (NPV) valuationComparable valuationROARestructuring(St

12、rategy)Why value value?Management disciplineTransparencyIndependenceAccountabilityResponsibilityFairnessSocial responsibilityStrategies to create valueInternal growth What is your dreamcompany?Focus vs diversifiedCore competence .How to value a firmThe value of a firm with a constant grow rate iswhe

13、re NOPLAT = net operating profit less adjusted taxesEBIT = earnings before interest and taxest = average tax rateWACC = weighed average cost of capitalg = growth rate = reinvestment rate ROICROIC = return on new invested capital = NOPLAT/ICg/ROIC = reinvestment rate = rI.How to enhance the value of

14、a firmThe MM formulaHow to enhance the value of a firmIncrease operating efficiency (NOPLAT)Increase return on new invested capital (ROIC)Invest in new project only when ROIC WACC Increase the growth (g), rI = g/ROICProlong the period of competitive advantage (N)Reduce the cost of capital (WACC).Val

15、ue DriversThree value drivers:Abnormal profit (invest only when ROIC WACC): in the right industryGrowth (g) or reinvestment: in the high growth industryRisk (WACC): (1) economy-wide risk (business cycle), (2) operating risk (degree of capital intensity), and (3) financing risk (leverage)Common mista

16、ke: Managers often ignore the cost of “equity capital.Sources of abnormal profitMonopoly (High profit margin): Microsoft or eBay (price or service differential; in the right industry)Low cost operator: Hon Hai Precision, Taiwan Semiconductor, Dell, BYD (make money from good management)Low financing

17、cost: GEBarrier to entry: (1) capital, (2) technology (patents), (3) distribution channels, (4) government protectionExample: Profit margin = 20%; WACC = 15%; Capital turnover = 2 timesFor every $100 sales, profit = $20, required capital investment = $50, cost of capital = $50*15% = $7.50, abnormal

18、profit = $20 $7.5 = $12.5.At what level of profit margin, will the firm become a mature company?.Abnormal profit: Motorola, Ericsson and Nokia1993-19951994-961995-971996-98MotorolaROIC20.26%16.83%14.14%8.17%WACC8.21%13.00%14.01%14.11%Diff12.05%3.84%0.12%-5.94%EricssonROIC27.25%28.54%32.73%20.60%WACC

19、5.07%8.10%11.80%11.69%Diff22.18%20.44%20.92%8.90%NokiaROIC11.94%15.42%18.71%27.60%WACC6.56%8.80%8.32%9.07%Diff5.39%6.62%10.39%18.54%.Earnings qualityAre your company future incomes easy to forecast? Are they sensitiveto business or industry cycle? (Microsoft vs Intel; GM vs Coca Cola) Economy-wide r

20、isk: Business cycle (GM vs Merck)Operating risk: Level of capital intensity (TSMC vs Yu Yuan)Financing risk: Leverage (NWD vs SHK Properties)Accounting information risk: Disclosure and corporate governance(CAS vs IAS; TSMC vs UMC)InventoryAccounts receivablesGross marginS&A expensesReserve for bad a

21、ccounts receivablesR&DProductivity.Corporate Governance.Recent corporate governance problems in the U.S.Manipulations of accounting earningsEnron, Global Crossing, Xerox, Adelphia Communications, World Com, Tyco International, ImClone Systems, Arthur Anderson, Freddie Mac, MicrosoftOff-Balance Sheet

22、 borrowingsEnron, ElanMotivation: Smooth earnings, jack up stock prices (stock options)ConsequencesFirms involved went to bankruptcy or were in troubleWhole market dropped due to investors loss of confidenceRemediesStrengthen the regulations by SEC and the U.S. CongressInternal and external auditing

23、More efficient boards of directors.Characteristics of Asian CompaniesOwned and controlled by family (pyramid or crossholding)Enhancement (interests of managers and shareholders can be more aligned)Entrenchment (stealing, tunneling, ignoring or destroying firm value)Lack of corporate governance (TSMC

24、 CEO: Integrity)Cannot trust outside professional managersDont know how to delegatePass CEO position to own son rather than capable managerCommit to more cognitive or heuristic bias.Why is corporate governance important?A recent survey conducted by McKinsey & Co. shows investors paya premium of more

25、 than 20% for good CG firms.The benefits of good corporate governance:reduce the cost of capital (WACC)increase the value of the firmsbenefit shareholders, employees, and societyChen, Chen, and Wei (2003) find companies in East Asia:non-disclosure CG improves from bottom 25% to top 75%: the cost of

26、equity capital is reduced 1.26% pointsDisclosure improves by the same magnitude, the cost of equity capital is reduced by 0.47% pointFirms in better CG country can also reduce the cost of capitalSimons (HBR, September 2002)profitability is positively correlated with how workers perceive their manage

27、rs behavioral integrity (hotel industry).What is corporate governance?The mechanisms of Pushing firms to operate more efficiently and to create value, andPreventing potential exploitation of outside investors, particularly shareholders, by corporate insiders such as the managementShareholders have c

28、ontrol rights Directors and managers are supposed to run the firms in the interests of the shareholders .Why is it needed?Agency problem between shareholders and managers (problem for U.S. companies)Agency problem between majority shareholders and minority shareholders (problem for Asian companies)E

29、xpropriation (entrenchment, stealing, tunneling).Good governance practiceWhat makes great boards great (Sonnenfeld HBR, September 2002)very simply, high-functioning work groupsa climate of respect, trust, and candor among board members and between the board and management. Information is shared open

30、ly and on timefeel free to challenge one anothers assumptions and conclusionsmanagement encourages lively discussion of strategic issues. feel responsibility to contribute to performance. assess their own performance, both collectively and individually. Installing effectively independent boardAn ind

31、ependent board chairman (CEO not the chairman)Three most independent committees on any boardThe audit committeeThe compensation committeeThe nominating committee.Why Value Value?.Japan in Mid-1980s: We are Number OneFrom Kim and Young.Japan Now: We are in Prolong RecessionFinancial Times: February 2

32、, 2002.Nikkei 225 vs. Dow: January 1984-June 2003 .Not Every Thing is Equal: Sony is Different .Toyota Motor is also Different .But Nissan is the same until Recently.Renaults 44.4% purchase in March 1999makes Nissan different since .Value-Based Management Makes the DifferencesThe performance differe

33、nce between U.S. firms and Japanese firms, and between Sony and other Japanese firms isGood performers adopt Value-Based Management (VBM), while losers do not.What is the problem for the U.S. market now?What is VBM?VBM focuses on value creation for their shareholders rather than stakeholders.What is

34、 the Decision Rule for VBM?VBM focuses on investments (old or new) that can generate a return on invested capital greater than their cost of capital. That is, invest only whenROIC WACC .What is the Value of a Firm?Firm value = Value of equity + Value of debtFirm Value = Assets in place + Growth oppo

35、rtunities= Book value + Growth optionsGrowth option makes a major difference in value among firms.Shareholder-Oriented Economies Perform BetterThe U.S. corporate focus on shareholder value since the mid-1980.The benefits are: GDP per capita in the U.S. has a lead of more than 20% over other countrie

36、s and has been widening since early 1990s, due toMuch higher factor productivity, especially capital productivityInvested in more productive (or value creating) projects, i.e., higher financial returns.Shareholder-Oriented Firms Benefit All200 years ago, Adam Smith postulated that“the most productiv

37、e and innovative companies would create the highest returns to shareholders and attract better workers, who would be more productive and increase returns further a virtuous cycleOn the other hand, “Companies that destroy value would create a vicious cycle and eventually wither away.Shareholder-Orien

38、ted Firms Benefit All (cont)Companies with higher labor productivity are more likely to create more valueCompanies that are able to create more value also create more jobsHappy workers, happy investors (Fortune, May 2002)Conclusion:A shareholder value focus not only is good for shareholders but also

39、 good for the economy and other stakeholders.Case studies (HBR)Leading for value by Pitman (March 2003): British bank Lloyds TSB A CEO-led transformation of the companys culture by Sir Brian Pitman: value-based managementa single definition of success and a single means of measuring it. At Lloyds, h

40、e replaced the existing array of implicit objectives with a single governing objective (generate greater value for shareholders) and established increasingly sophisticated internal metrics for achieving it.create value for everyone: Customer,employees, and communities.From 1983 to 2001, British bank

41、 Lloyds TSB increased its market capitalization 40-fold, in part by shedding assets and narrowing its focus.Case studies (HBR)When company values backfire by Edmondson and Cha (2002-11)May misinterpret and brand the CEO as a hypocriteMake your values mean something by Lencioni (2002-07)Enron 2000 an

42、nual report for corporate value: “Communication. Respect. Integrity. Excellence.Empty values statements create cynical and dispirited employees and undermine managerial credibility Values statements really to mean something should follow:understand the different types of values: core, aspirational,

43、permission-to-play, and accidental.be aggressively authenticown the processweave core values into everything.Restructuring CompaniesGeneral.The Value ManagerA focus on long-run cash flow returns, not quarter-to-quarter changes in earnings per shareValue-oriented view: Invest only when return on inve

44、sted capital cost of capital (ROIC WACC)Ability to take an outsiders view of the businessWillingness to act on opportunities to create incremental valueFinally, and the most important, the need to develop and institutionalize a managing value philosophy throughout the organization (it is an ongoing

45、initiative).The Process of Becoming Value-OrientedA restructuring that unleashes value trapped within the company (high benefit; but the cost can be high)DivesturesLayoffsDeveloping a value-oriented approach to leading and managing their companies after restructuringEstablishing priorities based on

46、value creationGearing planning, performance measurement, and incentive compensation systems toward shareholder valueCommunicating with investors in terms of value creation.When are Companies in Need of Restructuring?Score of 6-24 with 24 being the worst (based on Monitor)Total return to shareholders

47、 (TRS)Sales growth relative to industry (growth)Operating margin relative to industry (operating efficiency)Capital return relative to industry (ROIC)Number of business units (focus?)Distance from median industry capital structure (WACC, optimal capital structure).Restructuring ProcessDiagnostic Sca

48、n (Decision to restructure)Restructuring (Implementation plan)Value-based Management (VBM implemented)Incentive Design (New incentive system).Restructuring FrameworkCurrentmarket valueTotal potentialvalueDCF value using analyst forecastsValue withinternal and externalimprovementsDCF value usingmanag

49、ement expectationValue with internal improvementsMarket InefficiencyTakeover speculationInternal improvementsCorporate governanceOptimalopportunityPublic held businessGrowth opportunities + Financial EngineeringCapital structureDividend policyRisk managementDisposal / new ownersM&AJoint ventureSpin-

50、offsIPOsLetter stockDivestureOperating improvementsRevenue growthCost reductionCapital efficiencyPerception GapOvervaluedUndervalued Value createdThroughRestructuring.Restructuring Framework: ExampleThis company had 10 business units and its stock price was decliningMarket Value$1,000Maximum Value P

51、otential$1,800DCF value using analyst forecasts$1,050Value withinternal and externalimprovements$1,650DCF value using management expectation$950Value with internal improvement$1,200Market Inefficiency$50Value created$800Growth opportunities + Financial Engineering$150Not enough debtInternal improvem

52、ents$450Sold 3 losersInternal improvements$250Exit unprofitable product linesReduce inventoryPerception Gap-$100OvervaluedValue createdThroughRestructuring.Improve Operations: Internal ImprovementsChallenge every part of the business systemProcurementRaw materialsManufacturing/Work-in-progressFinish

53、ed goods (are they competitive?)InventoryDistribution channel and salesAccounts receivable.Rethink your portfolio of businesses: External ImprovementsFocus on two dimensions to look for value improvementValue creation potentialCompetitive advantageDecision:High value creation + best in competitive a

54、dvantage: should growHigh value creation + weak in competitive advantage: should improveLow value creation businesses: should dispose.Ownership Alternatives: External ImprovementsSpin-offsAvoid cross subsidization (IBM/PC)Eliminate management constraints (ATT&Lucent)Tax free Announcement effect is p

55、ositive (may exceed value of entity to be spun off)Initial Public OfferingsAllow direct investment in a subsidiaryTax free if IPO keeps cash (which may be used to repay corporate debt)Allow consolidation (tax and accounting) if less than 20% of equity is soldDirect SalesTaxable (may provide tax shie

56、ld).Financial EngineeringMinimizing Weighted Average Cost of Capital Does Not Maximize Value of Firm (Bankruptcy cost)Cost of equityWACCAfter-taxcost of debtMinimumWACCMaximize ValueDebt/EquityPercent.Sources of Restructuring ValueIn the U.S., the average breakdown of sources of value creation from

57、restructuring indicates that approximately 60% comes from strategic and operating improvementsInternal Improvements60%Divesture or Acquisition25%Financial Engineering15%.Put the Value Creation Plan into ActionPut Value into PlanningFocus planning and business performance reviews around value creatio

58、nDevelop Value-Oriented Targets and Performance MeasuresFocus on a measure that incorporate both growth and return on invested capital (ROIC)EP (Economic profit ) = Invested capital (ROIC Opportunity cost of capital)Tie Compensation to ValueAssess Value of Strategic InvestmentsDevelop Investor Commu

59、nications StrategyReshape the CFOs Role.Summary for RestructuringManaging value consists of three broad steps:Taking stock of the value-creation situation within the company and identifying restructuring opportunitiesActing on those opportunities (operational efficiency improvements, divestures, acq

60、uisitions, reorganization)Instilling a value-creation philosophyA managing-value focus does not create value through financial manipulations. It creates value through developing sound strategic and operating plansMost companies would benefit from a through review of restructuring opportunitiesManage