An Investigation of the Ownership Structure on Financial Performance of the UK and U.S. Companies - Coursework Example

Research Proposal Research Proposal Proposed Topic Topic: An investigation of the ownership structure on financial performance of UK and U.S. companies. Abstract The corporate governance framework in both UK and US requires companies to disclose details of owners as well as insider trading in the companies’ stocks. In 2014, the UK government has instigated the public register to report on the ownership of businesses. The underlying thesis is that the ownership structure has a direct influence on firms’ performance. The primary focus of the proposed research is on considering ownership structure as an endogenous variable that affects the financial performance of companies operating in the UK and US. The second area of investigation is to assess whether ownership structure affects all financial performance measures in a similar manner. The third area of focus would be on determining whether UK corporate governance framework generates better reporting on ownership by companies as compared to US companies. Thesis: The ownership structure measured as ownership concentration (proportion of shares held by major shareholders) and ownership identity (foreign and institutional investors) has a significant effect on firms’ performance. Support Elements: 1. There is a similarity in results pertaining to the relationship between ownership structure and firms’ performance in UK and US companies. 2. The ownership structure affects all financial performance measures in a similar manner. 3. The UK corporate governance and public reporting requirements generate better reporting on ownership as compared to US companies. Data Sources: The proposed research will be based on secondary data collection. The data pertaining to ownership structure and firms’ performance measures can be obtained from annual reports and financial data sources such as Morning Star. The data will be collected for companies operating in the UK and US for the year ending 2013. Limitations: The limitations of the proposed research could include (1) the inability to collect data for a large dataset of UK and US companies (2) the difficulty in using statistical tools and (3) the lack of primary information that could provide better insight into the relationship investigated. Annotated Bibliography Cucculelli, M. (2009). Owner identity and firm performance: evidence from European companies. Rome: Money and Finance Research Group The article is written by Marco Cucculelli. The research suggests that the effects of ownership across various European countries show considerably variable pattern. The article talks about how ownership structure leads the company to taking risks in their perspective situations and if it would venture out to be useful. Small family companies retain themselves from taking risks in the industrial market and their reaction is notably smaller when the demand in the industry is high. Their performance is demonstrated as better when they are measured by profit indicators. Formal companies are more prone to taking big risks in their industrial investments and other situations when the level of demand is changed in the market. De Wet, T. & Du Toit, E. (2007). Return on equity: A popular, but flawed measure of corporate financial performance. South African Journal of Business Management, 38 (1), 59-69. The article is written by Johannes De Wet and E. Du Toit, and is published by the Department of Financial Management in the Republic of South Africa. The article stated that the comparison between looking after the needs and demands of the shareholders and the efforts to achieve these criteria has been unsuccessful for companies. It is rather a daunting process to achieve certain goals rather than planning goals and this makes a shareholders’ job very complicated. There have been numerous activity observations over the years and many researchers have been of the view that the profit of a company can be calculated by the performance of the workers leading to how much they earn thus how much the company is making. The study uses a tool known as ‘return on equity’ (ROE) to measure the connection between the outcome and performance. ROE is the most popular form of calculating the relation between financial outcome and performance. It can be divided in to different ratio preferences. It is a ratio, which measures the profit and the financial performance measure that the company has indulged in. ROE has been a popular tool in the business world as it directly shows how the earning share of the company can be balanced and related with the performance. ROE is insufficient also due to it being not taking in to consideration the duration of the money inflows therefore the management team cannot depend on ratios alone to measure the activity produced by a worker during work. Another important and popular ratio tool is called Economic Value Added (EVA) which also measures the performance targets and activity against earnings. Copeland’s opinion is that the income level and the earnings per dividend do not connect with the amount of share being given back to the shareholders. From the researches being done on measures it has been figured out that no measure or ratio tool co-relate with the amount being returned to the share holders leading us to believe that the values offered by ROE have a very staggering link with the values and interests of the shareholders. Harris, R., & Robinson, C. (2003). Foreign Ownership and Productivity in the United Kingdom Estimates for U.K. Manufacturing Using the ARD. Review of Industrial Organization, 22 (3), 207-223 The article is written by Richard Harris and Catherine Robinson in alliance with Department of Economics and finance and National Institute Of Economic and Social Research. The aim of this article is to discuss the perception of whether foreign owned plants have a better and enhanced productivity rate. The importance of foreign plants productivity and how they breed is of great relevance to the government and industries. There are great advantages of the FDI (foreign direct investment) joining together with local industries. A few enter the local market as entering a new market would produce better financial outcome for the industry and also by the urge to mingle with an enclosed market. However, the beneficial outcomes of joining together with a domestic industry should be covering the money of moving to another place, the money needed to be invested in the market and also the dire risk of opening a new market. Aitken and Harrison state that plants owned by the foreign countries are better also due to FDI leading to the local plants being less productive. It is of the opinion that properties of foreign owned plants are beneficial in the long run too. Varcholova, T., & Beslerova, S. (2013). Ownership Structure and Company Performance: Research and Literature Review. Financial Internet Quarterly, 9 (2), 24-33. The article is written by Tatiana Varcholova and Stela Beslerova. In this journal article, the authors try to brief on the performance outcome and the effect ownership structures have on organizations. The source is credible as individuals who have excellent academic credentials have authored it and the source has been published in a reputable journal. The article talks about privatization of companies and the advantages it can have on the workers and the management. It is of the opinion that privatized firms have a better financial standing and performance in comparison to state-owned organizations. Both privatized and state-owned companies have varying effects on the ownership of the companies. Several researchers have given evidence on the financial performance targets between state-owned and privatized companies. The evidence proves that privatized companies have a better financial standing than state-owned companies. The article has concentrated on finding out the effects of ownerships. The evidence, which is presented, leads us to believe that state-owned firms are in a compromising situation when compared to private firms. Researches have showed varying conclusions on the subject of effects of ownership on the activity of the workforce and the performance of the organization, however, it is of the opinion that private companies has a far better financial position than state-owned companies. Wolfe, J., & Aidar Sauaia, A. C. (2003). The Tobin’s q as a company performance Indicator. Developments in Business Simulation and Experiential Learning, 30, 155-159. The article is written by Joseph Wolfe and Antonio Carlos Aidar Sauaia. The article is considered reliable as it received an award for the best paper by Simulation Track. In this article the author talks about the Tobin’s q which is the ratio in determining a company’s performance. It deals with the money invested in the company in the first place. Students indulged in an industrial game want to keep up with their performance. Big professionals try to enclose in their business games the same features as in the environment being addressed in a professional environment. The difference between Tobin’s q and Altman Z, which is another ratio measuring the industry’s financial standing, was also measured. The ‘q’ is relevant to a game’s operations and how smoothly it functions. Tobin’s q is a measure to observe the performance of various companies in games. The results of the research showed an indefinite pattern and required further probing in to the matter. Zahra, S. (2003). International expansion of U.S. manufacturing family businesses: The effect of ownership and involvement. Journal of Business Venturing, 18, 495-512. This article is written by Shaker A. Zahra and it informs us about what and which factors affect firms owned by family members. The source is credible as it incorporates extensive literature on the subject and provides objective findings to the research conducted in the report. Companies owned by families have now a major impact on the economic industry. Researches took collective data from 409 companies out of which 174 were family companies. After conducting a couple of tests, it was concluded that family firms were way behind in their global sales than the formal firms. Ownership is a fine way to give power to the owner to expand and look after the companies interest but interference of family in the firm leads to variety of knowledge being available for the managers and owners to choose from. A lot of family firms expanded their operations by selling their product to two to three countries but it will be astonishing to comprehend that some family firms had expanded their operations by selling their product to eleven countries. The family firms take keen interest in expanding their business internationally, which has proved to beneficial for the financial interests of the companies. Read More