Economics - Theses
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ItemThe corporate treasury function: risk management and performance measurement( 1997-05)The Australian financial system has changed dramatically in recent years, creating both threats and opportunities for value adding activities. Many large corporations have set up a separate treasury division or department to handle their financing requirements. This thesis derives the rationale for a separate treasury function from theory of the firm. A framework has been developed by drawing upon both the old theory of the firm (transaction cost economics) and the new theory of the firm (agency theory) to determine the appropriate governance structure to manage financial arrangements. Formal analysis of corporate treasury functions and performance measurement research has not kept pace with the growth of treasury activities. Appropriate benchmarks provide management with information to manage financial risk and to more accurately assess treasury performance. A benchmark is required for core treasury tasks, including debt portfolio management. Optimal treasury benchmarks are difficult to determine, due to the complexity involved in measuring financial exposures for firms which derive income from physical, rather than financial assets. The inter-relationships between financial risks, including maturity, interest rate and currency risk, further compounds the problem. Decomposition of financial risk into these respective elements allows identification of the firm specific factors that influence financial exposure. Appropriate benchmarks for managing repricing, refunding and foreign exchange risk depend upon the trade-off between transaction costs, agency costs and information signalling costs. Theory suggests growth options in real assets within the firm's investment opportunity set provide opportunities for natural hedges that offset financial risk. However, empirical analysis of share price sensitivity to interest rates and an analysis of debt maturity structure indicates growth options and agency factors are less important than firm specific characteristics when setting up benchmark portfolios to manage financial risk. Treasuries are often classified as either active or passive managers, but a continuum of strategies is possible when managing financial risk, rather than points at either end of a spectrum. Tolerance levels around the benchmark constrain activity within a relevant range - the more active the treasury, the broader the range. Constraints allow the degree of activity to be fine-tuned. The decision to actively manage risk depends upon whether value can be added in risk-adjusted terms. This is a function not only of whether opportunities exist, but also whether value can be added consistently, compared with a passive approach. The majority of practising treasurers describe themselves as 'active hedgers'. Subject to caveats outlined in the thesis, field experiments conducted over a three year period indicate the ability of corporate treasurers to add value to the firm through outperforming a passive benchmark portfolio of debt is limited. Respondents to an international survey on corporate treasury control and performance standards cited difficulty in setting benchmarks, particularly risk-adjusted benchmarks, as the major reason for not measuring treasury performance. Empirical determinants of benchmark structures for repricing risk, refunding risk and currency risk have been identified. A better understanding of the factors that determine financial risk will assist management when they are designing or refining benchmarks to manage financial risk and measure treasury performance.
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ItemThe growth of large mining firms in Australia: case-study: C.R.A. Ltd.( 1981)To discuss the issue of the growth of business firms fully would carry us through the whole economic theory and practice. Rather than pursuing the question through all its ramifications, I intend to deal with some aspects of the integration of business enterprise which have immediate bearing on the characteristics of firms and their relationships with one another. Regardless of the method used to integrate business activities, such method must be flexible, that is, being capable of accommodating a changing population of firms performing changing operations. To achieve such flexibility, more than one flexible method of integration may be used. There are three basic methods which may be mixed in varying proportions in any particular situation, namely, integration by administration, by market transactions and by co-operation, Since we do not have one firm within which all business activities are integrated by administration, we have to face the problems of what determines the boundaries of firms boundaries of geography, of processes of products and of size and what determines the choice between the other two basic methods of integration, the market and co-operation, which are used to co-ordinate activities beyond the boundaries of firms. In this part an attempt will be made to discuss briefly the following issues: (a) Why do firms specialise in particular processes and products? (b) Why are some firms more specialised than others? (c) What determines the size of the firm? (d) What are the merits of the three basic ways of integrating business activities? (From Introduction)