Finance Theory And Financial Strategy Essay

562 words - 2 pages

Article Review; Finance Theory And Financial Strategy (Myers) The article Finance Theory and Financial Strategy by S. Myers provided and interesting perspective on the relationship between finance theory and financial strategy. In essence he attempts to answer the question as to why managers do not use theory in strategic planning.The article addresses a gap between theory and strategy. Myers states three reasons why this gap exists. First, it's due to differences in language and "culture". Second, it's the misuse of finance and hence not accepted in the strategic formula. And third, it is a result of a failed discounted cash flow analysis. (Myers) This gap is most apparent when a firms strategic goals and financial goals are in conflict. This appears as managements concern for EPS while implementing strategic maneuvers. This ultimately is a short-term vs. long-term approach conflict among and within managers.The gap could be described as a cultural problem. Needing only additional communication to suffice. As both financial and strategic analyses are subject to error. One might expect a checks and balances system in place whereby the financial is checked by the strategic and the converse. For example, during a strategic analysis one would expect a process of double-checking, with a NPV calculation, to be demonstrated. Unfortunately this is rarely accomplished.The misuse of finance theory is also a contributing factor to the gap between finance theory and financial strategy. Typical errors made in computing DCF create a situation favoring short-term projects. For example, internal projects are compared by their internal rate of return and not NPV, inconsistent treatment of inflation while computing DFC, and using unrealistic high discount rates. With this said it appears that managers may not truly understand what it takes to make a...

Find Another Essay On Finance Theory And Financial Strategy

Investigate that "Game theory is grounded in well established theory, but it is too hard to use in developing and implementing international business strategy"

2620 words - 10 pages IntroductionSince in 1994, John Nash, John Harsanyi, and Reinhard Selten were awarded the Nobel Prize in Economics (Crainer, 1996), business people had started to apply the game theory in the business strategy. Some people argued that game theory is well established theory, but it is too hard to use in developing and implementing international business strategy. In the author's opinion, even though game theory has some demerits to apply in the


1695 words - 7 pages flow, corporate finance and takeovers, American Economic Review 76: 323-329. Jensen, Michael C. and William Meckling (1976). Theory of the Firm: Managerial Behavior, Agency Cost, and Capital Structure, Journal of Financial Economics 3: 305-360. Jordan, J.; J. Lowe; and P. Taylor (1998). Strategy and Financial Policy in UK small Firms. Journal of Business Finance and Accounting 25: 1-27. Karim. S and W. Mitchell (2000). Path-dependent and path

Developing a New Business Model for Jaguar Land Rover

3853 words - 15 pages marketing strategy to the needs of the UK automotive market and the commitment of its organizational resources to both the market as well as the strategy implementation itself. The marketing plan covers the business purpose, a detailed company analysis, definition of the JLR financial services core marketing strategy, key competitor analysis to better understand where JLR Financial Services is positioned along with other competing companies

Business of Field

926 words - 4 pages food upon ordering from the website. I chose my major as finance because finance plays a crucial role in building up a healthy economy of a country. Finance impacts each and every individual, regardless of whether or not they have studied finance as a discipline. Companies, organizations and businesses deal with finance because it helps them to make qualitative and quantitative financial decisions regarding funding a particular project or managing

Middle East Countries’ Stock Markets under Contrarian and Momentum Strategies

1811 words - 7 pages trading strategies. Review of Financial Studies, 11, 489−519. Cooper, M. (1999). Filter rules based on price and volume in individual security overreaction. The Review of Financial Studies 12, 901–935. Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and security market under- and overreactions. Journal of Finance, 53, 1838−1885. De Bondt, W. F. M., & Thaler, R. (1987). Does the stock market overreact? Journal of

Cost and Benefit of Hedging Risk Using Financial Derivatives

926 words - 4 pages Finance theory does not provide a complete framework for explaining risk management under the fluctuated financial environment in which firm operates. Hence, for corporate managers, they rank risk management as one of their top priorities. One of the strategies to reduce risk is by hedging. This paper will discuss the advantages and disadvantages of hedging risk using financial derivatives. Hedging depends across various motives. For example

The Traditional Approach to Capital Structure

1201 words - 5 pages structure. (II) Corporate Tax After the net income approach is put forward, Miller and Modigliani realized that they ignore the existence of corporate tax. So they fixed the original irrelevance theory which takes into account the corporate tax. The advantage of using debt finance is that the interest debt payment could use to offset the corporate tax. Hence the financial leverage reduced the weighted average cost of capital after tax in a company

Transformation and Peace-Keeping

600 words - 3 pages ), Juba, South Sudan Provided financial management consultant services in Organizational Development and Capacity Building to the Sudan People’s Liberation Army (SPLA) transformation process to a conventional force. Designed and developed a strategic defense financial management system to enable the SPLA to achieve its financial strategic goals. Developed required policies, procedures and processes in support of SPLA finance and budget process

Financial Theories

2109 words - 8 pages Financial Theories PAGE \* Arabic 10 Financial TheoriesDavid, Rishi, Vinod, PraneetUniversity of PhoenixFinance554Cale ThomasOct 23, 2006Financial TheoriesCapital structure theory is a challenging issue in corporate finance. Even after four decades of numerous studies and theories on the subject of capital structure, researchers are still puzzled by their inability to provide a simple and concise answer.The Modigliani and Miller Theorem:Franco

What is Project Finance?

982 words - 4 pages has described what exactly project finance means. It has been highlighted the key challenges and risks of project finance and the tools used to manage them. It has been of great use by practically applying the theory of classroom topics such as credit derivatives, bonds, financial mathematics and risk management to name a few we were able to bring the theory of class to life. I would like to conclude with a quotation from a man with a wealth of

International Finance

862 words - 3 pages " strategy."Not dealing properly with the financial risk of an international business is equivalent to "passive speculation" and contrary to the rules recommended in the GAAP standards for corporate management and accounting" (Bostas, 2005). The objective of a finance department is to protect the cash flows of the primary business and to manage the financial assets and liabilities of the group.It is the responsibility of the corporate Board and

Similar Essays

Financial Theory And Corporate Policy Essay

2126 words - 9 pages and 0.05381 respectively and finally, the correlation between the BP and Chevron are 0.64773 respectively as shown in table [A]. RETURN ANALYSIS In financial investments, a change in both interest and dividends comprises the returns of a portfolio. In calculating such returns (average) we can employ various standards such as the arithmetic rate of return or geometric rate of return. However, we can also compute statistical results of an

The Strategic Risks And Financial Strategy Of International Market Expansion

1486 words - 6 pages the euro and the dollar changes from a daily basis. The strategic risks and financial strategy to consider for possible expansion is advanced international markets increase Mars, Inc. sales and products in existing markets is the easiest and most risk-free approach towards expanding. The role played by currency speculators, particularly, should not be underestimated, as it exerts significant influence on the market. In addition, foreign

Modern Portfolio Theory, Financial Engineering, And Their Roles In Financial Crises

1155 words - 5 pages The article “Modern Portfolio Theory, Financial Engineering, and Their Roles in Financial Crises” discusses modern portfolio theory, and the financial engineering. The author mentions roles that modern portfolio theory and financial engineering played in the financial crises. Also, the author states the issue of why elegant mathematics leads to bad polices. In this assignment, I will summarize most of the points that are discussed in the article

Developing A Business Plan Will Enable You To Effectively Execute Your Financial, Marketing, Legal, And Management Strategy

989 words - 4 pages Starting a small business is often an overwhelming and unpredictable venture, a sure fire approach to improve profitability is developing a solid business plan. Developing a business plan will enable you to effectively execute your financial, marketing, legal, and management strategy. An inadequately developed business plan generally leads to a failing business.A business plan outlines your business strategy; the industry, business structure