Investment Appraisal Process in the Banking & Finance Industry

We have studied how the banking and finance industry performs investment appraisal, measures subsequent follow-up and designates project success or failure. Furthermore, the authors looked into the extent of use of the new generation value management models. The result shows that firms are not using the same measurement scale in all stages of a project. Moreover, there is a tendency to shift from traditional appraisal methods to the new generation value management models.DCF methods;project;investment appraisal;shareholder value analysis;value management techniques

Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach

We develop a framework for analyzing the capital allocation and capital structure decisions facing financial institutions such as banks. Our model incorporates two key features: I) value-maximizing banks have a well-founded concern with risk management; and ii) not all the risks they face can be frictionlessly hedged in the capital market. This approach allows us to show how bank-level risk management considerations should factor into the pricing of those risks that cannot be easily hedged. We examine several applications, including: the evaluation of proprietary trading operations; and the pricing of unhedgeable derivatives portfolios. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Towards Efficient Public Sector Asset Management

Governments are accountable for providing quality public services to their citizens at the most favourable terms. They are, among other issues, responsible for managing a diversified public asset portfolio. This paper examines one of the critical financial challenges in Croatia: managing public sector assets efficiently. It attempts to facilitate better understanding of public asset management as an integral part of public sector reforms. The lack of reliable information on public assets in place hinders determination of the assets’ value, budgeting for asset management activities and evaluating public asset portfolio performance. As a result, assets are managed on an ad-hoc, often reactive basis. Starting from the concept that public authorities have to be fully accountable to the public, we propose the preconditions necessary for commencing proper public asset management practice in Croatia. Our model might help other countries that are also faced with public asset management inefficiency.public sector assets, centralised asset registry, accrual financial reporting, professional asset management, Croatia

Accounting for government guarantees: perspectives on fiscal transparency from four modes of accounting

Government guarantees are increasingly important as a policy instrument in public infrastructure investment and to assist the banking and financial sectors following the global financial crisis. This paper analyses how different modes of accounting characterize such guarantees in the contexts of public sector financial reporting, statistical accounting, budgeting and long-term fiscal projections. Guarantees are difficult to specify for accounting treatment and consistent conceptualization of liabilities. These difficulties make it attractive for governments to treat obligations as off-budget and off-balance sheet contingent liabilities, rather than recognize them in financial statements and statistical accounts. Miller and Power’s territorializing, mediating, adjudicating and subjectivizing roles of accounting are utilized to analyse the reporting of UK government guarantees. Provisioning for guarantees is complex in financial reporting statements and often absent in national accounts, a deficiency which Eurostat has attempted to address by devising the concept of standardized guarantees and by securing more disclosure of contingent liabilities. There is potential for future research especially where there is greater mediation between the four modes of government accounting

Economic Valuation Models for Insurers

Recently much attention has been given to the approaches insurers undertake in valuing their liabilities and assets. For example, in 1994 the American Academy of Actuaries created a Fair Valuation of Liabilities Task Force to address the issue. In 1997, the Academy established a Valuation Law Task Force and a Valuation Tools Working Group to investigate the various valuation approaches extant and to make recommendations on which models are best suited to the task. Much of the published work has focused on attributes of the various models, their strengths and shortcomings. Some of the work has addressed the larger questions, but in our view, it is useful and necessary to provide a taxonomy of approaches and evaluate them in a systematic way in accordance with how well they achieve their aims. In this paper we focus primarily on the economic valuation of insurance liabilities, although we do address some valuation issues for assets. We begin in Section I by defining insurance liabilities. Next, in Section II, we discuss the criteria for a good economic valuation model. This is followed by a taxonomy of valuation models in Section III. In Section IV, we examine insurance liabilities in the context of this taxonomy and identify the minimum requirements of an economic valuation approach that purports to value them adequately. An illustration of the application of a modern valuation model is given in Section V. We conclude in Section VI by discussing some limitations of our analysis, and offer some recommendations for implementation.

The quest for public management reform : theory and practice in the case of The Netherlands 1970-1995

Public management reform and public reorganisation are undertaken now for more than two decades in the Western world. These attempts to modernise the institutions in the public sector and their public policies have been inspired by criticisms on big and classical government and on notions of a smaller but better government. Theoretical analysis, empirical research and ideological beliefs are elements in the debate, and many times they are confused In this research memorandum, the quest for public management reform is described, analysed and evaluated in a case study of the Netherlands for the period 1970-1995. The early beginnings of the reform debate and of reform policies can be traced back to the late nineteen sixties. This resulted in the nineteen eighties in six Big Operations at three levels of the public sector: at the central government level, at the local government level and in the third sector. These operations are in various ways interrelated. The miscellaneous and sometimes even disappointing outcomes of these operations resulted in more modest attempts to public management reform in the nineteen nineties. This memorandum concludes with a theoretical analysis of the determinants of success and failure of public management reform and public reorganisation. Public management reform is in particular a difficult and complicated learning process, which has to be undertaken in horizontal and democratic policy networks, and in consultations and negotiations with all political actors involved: the politicians as political principals, the bureaucrats as executing agents, and the public as consumers of public service delivery. NEDERLANDS ABSTRACT De Zoektocht naar Hervorming van het Overheidsmanagement. Theorie en Praktijk in Nederland 1970-1995. Hervorming van het overheidsmanagement en van de organisatie van de overheid wordt reeds twintig jaar in de Westerse wereld ondernomen. De pogingen tot fundamentele hervorming van de organisatie en het management van de overheid vinden hun inspiratiebron in de aanhoudende en radicale kritiek op de grootschalige en klassiek georganiseerde overheid en in het concept van een kleinere maar betere overheid. Theoretische analyse, empirisch onderzoek en politiek-ideologische stellingnamen vormen onderdeel van het debat, maar worden vaak door elkaar gehaald waar zij zouden moeten worden onderscheiden. In dit research memorandum wordt de speurtocht naar hervorming van de organisatie en het management van de overheid in Nederland beschreven, geanalyseerd en geëvalueerd voor de periode 1970-1995. Het vroege begin van het hervormingsdebat en van het hervormingsbeleid kan worden getraceerd in de late jaren zestig. Een en ander resulteerde uiteindelijk in de jaren tachtig in de zes zogeheten Grote Operaties op drie niveaus van de publieke sector: op het niveau van de centrale overheid, op het niveau van de lokale overheid en in de derde of non-profit sector. Deze operaties hangen onderling op velerlei manier samen. De wisselende en soms ronduit teleurstellende resultaten van deze operaties leidden tot meer bescheiden hervormingspogingen in de jaren negentig. Dit memorandum sluit af met een theoretische analyse van de succes- en faalfactoren van hervorming van de organisatie en het management van de overheid. Hervorming van de publieke sector is in het bijzonder een moeilijk en gecompliceerd leerproces, dat ter hand genomen moet worden in het kader van horizontale en democratische beleidsnetwerken, en in voortdurend consultatie en onderhandeling met alle betrokken politieke actoren: de politici als opdrachtgevers, de bureaucratische functionarissen als uitvoerders, en het publiek als consumenten van openbare dienstverlening.public economics ;

The Impact of Tax Uncertainty on Irreversible Investment

Tax legislation, fiscal authorities, and tax courts create tax uncertainty by frequent tax reforms and various different interpretations of the tax law. Moreover, investors generate model-specific tax uncertainty by using simplified models that anticipate the actual tax base incorrectly. I analyze the effects of stochastic taxation on investment behavior in a real options model. The investor holds an option to invest in an irreversible project with stochastic cash flows. To cover the effects of both tax base and tax rate uncertainty, the investment’s tax payment is modelled as a stochastic process. Increased tax uncertainty has an ambiguous impact on investment timing. The view that tax uncertainty depresses real investment is rejected. A higher expected tax payment delays investment. A higher tax rate on interest income affects investment timing ambiguously.tax uncertainty, capital budgeting, real options, investment incentives

The Impact of Legislature and Citizens on the Budgeting Process in Switzerland: Lessons for Central and Eastern Europe

Scholars evaluating national and local budget procedures in Central and Eastern Europe generally advocate a greater role for legislative bodies and citizens. Mature federations and decentralised countries in Western Europe are often cited as prime examples of participatory budgeting which is supposed to lead to greater fiscal discipline, a better allocation of public resources and higher administrative efficiency. This paper investigates the strengths and weaknesses of legislative activism in Switzerland, with special regard to its ability to answer the double challenge resulting from a push for new expenditures and lower taxes, on one side, and an attempt to maintain deficit levels close to zero, on the other. While the strong consensus orientation, the careful regulation of revenue and expenditure assignment, as well as the systematic use of voters' right to direct participation are perceived as key to the success of the Swiss democracy, this study also highlights how these features can limit the effective influence of the parliament on budgeting and planning. Central and East European countries may learn several lessons from the Swiss case, all of which are rather thought to add an input to long-term reforms rather than provide immediate solutions. The analysis points out some serious limitations of the hierarchical budgeting model as well as the consequences of a haphazard and opaque expenditure and revenue assignment. It reminds, however, that the dynamic process of post-socialist transition requires governments and parliaments to preserve a great deal of flexibility in the budget procedure. At the same time, new methods of public management and a greater transparency of public budgets are examples of tools that may be introduced on the medium term without the risk of slowing down the transition process.parliament; legislative; budgetary procedure; direct democracy; intergovernmental fiscal relations; public administration; transition economies; Switzerland