Monday, January 20, 2020

Comparing Brave New World and Handmaids Tale :: comparison compare contrast essays

Comparison and Contrast between Brave New World and Handmaid's Tale The government in Huxley's Brave New World and Atwood's Handmaid's Tale, both use different methods of obtaining control over individuals, but are both similar in the fact that humans are looked at as instruments. Human's bodies, in both novels, are looked at as objects and not directly as living things with feelings. In both societies the individuals have very little and are controlled strictly by the government. In Handmaid's Tale and Brave New World, through issues of employment, class systems, and the control of reproduction, Atwood and Huxley forewarn that in an all-powerful society, it is destined to become corrupt. Both novels treat humans as items and not as human beings. In HMT, the entire structure of the Gilead society was built around the single goal of reproduction. Gilead is a society facing a crisis of radically dropping birthrates and to solve the problem it forces state control on the means of reproduction. Controlling women's bodies can succeed only by controlling the women themselves. The society's political order requires the overthrow of women. The government strips the women of the right to vote, the right to hold property or jobs and the right to read. The women's ovaries and womb become a `national resource' to the society. Women cease to be treated as individuals and rather as potential mothers. Women internalize the state created attitude even independent women like the narrator of HMT, Offred. At one point lying in a bathtub and looking at her naked form, Offred states; " I used to thin of my body as an instrument, of pleasure, or a means of transportation, or an implement for the accomplish of my will ... now the flesh arranges itself differently. I'm a cloud, congealed around a central object, the shape of a pear, which is hard and more real than I am and glows red within its translucent wrapping." Offred contrasts the way she used to think about her body to the way she thinks about it now. Before, her body was an instrument, an extension of herself. But now her self no longer matters and her body is only important because of its `central object', her womb which can bear a child.

Sunday, January 12, 2020

Ownership Structure, Managerial Behavior and Corporate Value

Journal of Corporate Finance 11 (2005) 645 – 660 www. elsevier. com/locate/econbase Ownership structure, managerial behavior and corporate value J. R. Daviesa, David Hillierb,T, Patrick McColganc a University of Strathclyde, UK b University of Leeds, UK c University of Aberdeen, UK Received 21 November 2002; accepted 6 July 2004 Available online 20 April 2005 Abstract The nonlinear relationship between corporate value and managerial ownership is well documented. This has been attributed to the onset of managerial entrenchment, which results in a decrease of corporate value for increasing levels of managerial holdings. We propose a new structure for this relationship that accounts for the effect of conflicting managerial incentives, and external and internal disciplinary monitoring mechanisms. Using this specification as the basis for our analysis, we provide evidence that the managerial ownership–corporate value relationship is co-deterministic. This finding is at odds with recent work which reports that corporate value determines managerial ownership but not vice-versa. D 2005 Elsevier B. V. All rights reserved. JEL classification: G32 Keywords: Ownership structure; Capital expenditure; Corporate value; Tobin’s Q 1. Introduction In a market without agency problems, corporate managers will choose investments that maximise the wealth of shareholders. In practice, competing objectives which are incompatible with the shareholder wealth-maximising paradigm may also be pursued. T Corresponding author. Leeds University Business School, University of Leeds, Maurice Keyworth Building Leeds, LS2 9JT, UK. Tel. : +44 113 3434359; fax: +44 113 3434459. E-mail address: d. j. [email  protected] c. uk (D. Hillier). 0929-1199/$ – see front matter D 2005 Elsevier B. V. All rights reserved. doi:10. 1016/j. jcorpfin. 2004. 07. 001 646 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Following Jensen and Meckling (1976), a large literature has developed that examines how managerial behavior impacts upon firm performance. A vibrant strand of this literature concerns the relationship between managerial ownership levels, the direct investment decisions made by management and the inherent value of the firm, as proxied by Tobin’s Q ratio. Morck et al. 1988), McConnell and Servaes (1990), and Hermalin and Weisbach (1991) provide evidence of a significant nonlinear relationship between corporate value and managerial ownership. Specifically, value increases with managerial holdings for low levels of ownership. At some level, managers become entrenched within the firm resulting in a decrease in firm value. However, whereas Morck et al. (1988) and Hermalin and Weisbach (1991) document further changes in the corporate value–managerial holdings relationship at high levels of equity ownership, McConnell and Servaes (1990) report no such change. Recent work has built upon the findings of Demsetz and Lehn (1985) who argue that levels of managerial ownership will be determined endogenously in equilibrium. Moreover, Cho (1998) and Himmelberg et al. (1999) have shed doubt upon the earlier findings of Morck et al. (1988) and McConnell and Servaes (1990) by controlling for the effects of endogeneity and unobservable (to the econometrician) firm characteristics in their analysis. After controlling for the effects of endogeneity in the corporate value– managerial holdings relationship, they showed that managerial ownership had little or no effect on corporate value and investment. Short and Keasey (1999) and Faccio and Lasfer (1999) utilize a cubic specification to model the corporate value–managerial holdings relationship and both report a significant nonlinear functional form, similar to Morck et al. (1988), for British companies. However, neither study fully examines the misspecifying impact of endogeneity on their results. In this paper, we propose a new structure to the managerial ownership–corporate value relationship which captures a more complex characterisation of the evolving behavior of managers. We argue that at high levels of managerial ownership when external market discipline becomes neffective, there will be a resurgence of entrenchment behavior. With equity holdings around 50%, managers will have implicit control of their company, but still do not have objectives completely aligned to external shareholders. Only at very high levels of managerial holdings are incentives akin to other shareholders. When this model is applied to a l arge sample of firms incorporated in the UK, managerial ownership is seen to have a significant impact on corporate value. This relationship is endogenous, and consistent with Cho (1998) and Himmelberg et al. (1999), corporate value has a corresponding effect on managerial holdings. We also find that although ownership levels are affected by firm level investment, there is no evidence of the reverse occurring. In the next section we outline our model of the managerial ownership–corporate value relationship. We present empirical results in Section 3 and conclude in Section 4. 2. The model In this section, we propose an alternative structure to the managerial holdings–corporate value relationship and argue that the cubic, or simpler representations, used in earlier J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 647 studies1 are unnecessarily restrictive and misspecified. The model that is presented here captures further nonlinearities in this relationship at high levels of managerial holdings and has a quintic specification. Management is faced with both negative and positive incentives to ensure that they follow objectives which maximise shareholder wealth. The effectiveness of these incentives is potentially a function of the level of managerial ownership in the firm. We view the propensity of management to maximise shareholder wealth to be a function of three unobserved factors: external market discipline, even if it is weak, internal controls and convergence of interests. Moreover, the strength of each factor can be viewed as a function of the level of managerial ownership in the firm. 2 2. 1. Low levels of managerial ownership For low levels of managerial ownership, external discipline and internal controls or incentives will dominate behavior (see Fama, 1980; Hart, 1983; Jensen and Ruback, 1983). Empirically, Morck et al. (1988), McConnell and Servaes (1990) and Hermalin and Weisbach (1991) report results consistent with this behavior for the relationship between managerial holdings and corporate value. However, there is also the possibility that lower levels of ownership within this range have endogenously arisen from performance related compensation packages, such as stock options and stock grants rather than increased ownership in itself leading to higher Q ratios. 2. 2. Intermediate levels of managerial ownership At intermediate levels of managerial ownership, management interests begin to converge with those of shareholders. However, with greater ownership comes greater power in the form of voting rights. Managers may, at this level of holdings, maximise their personal wealth through increasing perquisites and guaranteeing their employment at the expense of corporate value. In addition, while low managerial ownership levels may have arisen through the vesting of compensation plans, it is unlikely that such plans will provide management with a moderate ownership stake in the firm. Moreover, even though external market controls are still in place, these and the effect of convergence of interests are not strong enough to align the behavior of management to shareholders. Managerial labour markets operate on the principal that poorly performing 1 See Morck et al. (1988), McConnell and Servaes (1990), Hermalin and Weisbach (1991), Cho (1998) and Himmelberg et al. (1999) for US companies and Short and Keasey (1999) and Faccio and Lasfer (1999) for UK companies. 2 For example, since compensation packages such as stock options are a transfer of wealth from shareholders to management, their value will lessen as managerial ownership increases. External market discipline is also a function of managerial ownership. Large shareholdings by top management act as a deterrent for takeovers because of the greater ability to oppose a hostile bid or drive up premiums to the point where bidders no longer view the target company as a positive net present value investment Stulz (1988). Finally, internal controls in the form of monitoring from large shareholders and corporate boards should reduce the scope for managers to diverge greatly from the interests of shareholders. Again, however, such discipline is likely to be inversely related to managerial control Denis et al. (1997). 648 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 anagers can be removed and appropriately disciplined. Studies by Denis et al. (1997) in the US and Dahya et al. (2002) in the UK both find an inverse relation between topmanagement turnover and managerial ownership. This lack of discipline provides evidence of a deficiency in incentives for managers to maximise shareholder value at this level of owners hip. Franks and Mayer (1996) also report that hostile takeover targets in the UK are not poorly performing firms, which is in contrast to the findings of a disciplinary role for corporate takeovers in the US by Martin and McConnell (1991). In this context, Franks and Mayer (1996) provide significant evidence that takeovers in the UK may not act to remove a self-serving board even when they are performing poorly. This lack of disciplinary control over poorly performing management may strengthen management’s ability to pursue sub-optimal corporate policies at intermediate ownership levels. 2. 3. High levels of managerial ownership (less than 50%) As levels of managerial equity ownership grow, objectives converge further to those of shareholders. At ownership levels, below 50% management do not have total control of the firm and external discipline still exists. While perhaps no longer being subject to any major discipline from external takeover markets, it is likely that even at these levels of ownership, managers are still subject to discipline from external block shareholders. This is particularly true in the UK, where because of strong informal ties between institutions (Short and Keasey, 1999), a lax regulatory environment concerning the ownership of listed companies (Roe, 1990) and low monitoring costs (Faccio and Lasfer, 1999), institutional activism is stronger than in the US. This view is also consistent with Franks et al. (2001) contention of strong minority protection laws in the UK, whereby large shareholders cannot transact with related companies without the consent of the firm’s minority shareholders. The UK regulatory framework stands in contrast to US corporate law which limits minorities to seeking redress after the related party transaction has taken place. Combined with monitoring from UK institutions, this may allo w external shareholders to impose some form of control on management even at elatively large levels of managerial ownership. 2. 4. High levels of managerial ownership (greater than 50%) At levels above 50% ownership, management has complete control of the company. Although atomistic shareholders are unlikely to have been able to in influence managers at far lower levels of ownership than this, there is always a possibility that a cartel of blockholders, allied with minority shareholder’s rights under UK company law, may be able to mount a challenge to management if they fail to make decisions in shareholders’ best interests. For a more in-depth discussion of the institutional differences and similarities between the United Kingdom and United States, see Short and Keasey (1999) and Faccio and Lasfer (1999). 3 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 649 At greater than 50% managerial ownership, this is no longer likely to be a serious issue to management. Furthermore, with majority ownership, the probability of a hostile takeover effectively becomes zero. The failure of external discipline combined with a lack of blockholder incentives above 50% may result in a decrease in corporate value for a small window of managerial holdings above this level. This fall in corporate value is consistent with the theoretical predictions of Stulz (1988). 2. 5. Very high levels of managerial ownership Finally, as managerial shareholdings rise to very high levels, management effectively become sole owners of the company. This would lead to value-maximising behavior as predicted by Jensen and Meckling (1976). Consistent with Morck et al. 1988), Short and Keasey (1999) and Faccio and Lasfer (1999) at above a certain level of ownership, corporate managers are faced with such severe financial penalties for failing to maximise the value of their companies that they are forced to make decisions which will maximise firm value, regardless of how this affects their private benefits of control. 2. 6. Summary Our characterisation of a highly nonlinear relationshi p between managerial equity holdings and corporate value is in contrast to earlier studies (Morck et al. , 1988; McConnell and Servaes, 1990; Hermalin and Weisbach, 1991; Cho, 1998; Himmelberg et al. 1999)4, which posit fewer turning points in their analysis. There is little theoretical basis on which the individual turning points can be determined, and the findings of Kole (1995) suggest that these will be in influenced by the size of the firms in the sample. However, it is expected that the second local maximum will be in the region of 50% managerial ownership reflecting the stage at which management gain total control of the company. In the next section, the main tests of our hypotheses will be carried out. 3. Empirical results 3. 1. Description of the data We use data on managerial and external block ownership for 1995 from the MacMillan London Stock Exchange Yearbook for 1996 and 1997. The Yearbook provides summary accounting data including a consolidated balance sheet, information on company directors, legal information on the company’s lawyers, auditors and stockbrokers, principle activities, company history, capital and dividend payments, and industrial sector for the McConnell and Servaes (1990) modelled the corporate value–managerial ownership relationship as a quadratic function, which by construction has only one turning point. 650 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 vast majority of all quoted companies and securities. 5 We restrict our attention to nonfinancial companies only and require that each firm has complete managerial and external ownership data for 1995, which leaves 802 industrial companies in our sample. 6 Data on capital expenditures, to tal assets employed, after tax profits, depreciation, leverage, equity market values, and research and development costs are collected from Datastream. We estimate Tobin’s Q ratio (our proxy for corporate value) using the formula below: Q? MVEQ ? PREF ? DEBT BV ASSETS ? 1? where: MVEQ=the year-end market value of the firm’s common stock; PREF=the yearend book value of the firmTs preference shares (preferred stock); DEBT=the year-end book value of the firmTs total debt; and BV ASSETS=the total assets employed by the firm, which is measured as total assets minus current liabilities. Our measure is consistent with the modified version of the formula as used by Chung and Pruitt (1994) who find that 96. 6% of the variability in the popular Lindenberg and Ross (1981) algorithm of Tobin’s Q is explained by their approximation. Our method also avoids the data availability problems which arise from using the more rigorous algorithms proposed by Lindenberg and Ross (1981) and Lewellen and Badrinath (1997) in order to estimate the replacement cost of assets. We use book values of preferred stock and long-term debt, rather than the market values proposed by Lindenberg and Ross (1981) and Lewellen and Badrinath (1997). In the UK, there is a far less active market for the trading of corporate debt than that which exists in the US, forcing us to rely on book values for these variables. In a final stratification of our sample, we mitigate the problem of potential outliers and trim 25 firms with the largest and smallest Tobin’s Q measure, leaving a final sample of 752 firms. 7 Table 1 presents descriptive statistics for our sample data. The mean managerial ownership stake of all board members is 13. 02%, which is similar to comparable US studies, but slightly lower than Faccio and Lasfer (1999) who report mean ownership of 16. 7%. Tobin’s Q is slightly higher than that reported for related US work with a mean value of 1. 96. The standard deviation of Tobin’s Q is 1. 21, which is also greater than other studies. However, it is substantially less than the mean of 2. 47 reported by Doukas et al. (2002) and is relatively similar to the mean value of 1. 86 that Short and Keasey (1999) report for their market valuation ratio. 8 The mean blockholder ownership is 37. 34% and is on a par with that reported for US firms by McConnell and Servaes (1990) (32. 4%) and 34. 57% reported by Faccio and Lasfer (1999) for UK firms. The full range of firm sizes is included in the sample with the 5 To establish the reliability of the summary ownership data, we carried out a correlation analysis of a subsample of 422 firms from he original data set of 802 companies (52. 62%) for which we were able to obtain company annual reports. The yearbook data and company accounts data exhibited a correlation of 0. 90, with a pvalue of 0. 00. We also establish the robustness of our data by re-estimating the model using data for 1997. This result is discussed later in this section. 6 Recently listed, merged or acquired firms are not included. 7 This is a larger sample than that used by Morck et al. (1988)—371 firms, Cho (1998)—326 firms and Himmelberg et al. (1999)—maximum 427 firms in any 1 year. Measured as the market value of equity divided by the book value of equity, minus any intangibles. J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 1 Descriptive statistics Variable Management ownership Blockholder ownership Largest stakeholder Capital expenditures Total assets employed After tax profits less depreciation/assets employed Debt/assets employed Market value of equity Research and development Tobin’s Q Mean 13. 02% 37. 34% 18. 82% 21,221 255,642 0. 1425 0. 1411 335 2918 1. 9647 S. D. 18. 06% 23. 57% 21. 64% 75,317 1,583,274 0. 4763 0. 252 1399 44,108 1. 2092 Minimum 0. 00% 0. 00% 0. 00% 7 268 A10. 977 0. 0000 0. 68 0 0. 4502 651 Maximum 79. 90% 100. 00% 100. 00% 1,024,200 37,774,000 3. 4207 4. 8358 26,224 1,198,988 7. 0997 Managerial own ership data measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder data measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Largest stakeholder is the largest single outside blockholder that holds at least 3% of company’s outstanding equity. Capital expenditures (thousands), total assets employed (thousands), after tax profits, depreciation, leverage, equity market values (millions) and research and development costs (thousands) are collected from Datastream. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. mallest company having an equity market capitalization of o680,000 and the largest company’s equity valued at approximately o26 billion. The mean market capitalization of firms in the sample is o335 million. Table 2 provides the distribution of sample statistics grouped by managerial ownership. A very large proportion of the sample (62%) have managerial ownership levels less than or equal to 10%. However, a larg e fraction of companies (11%) also in the sample had boards Table 2 Breakdown of sample by managerial ownership Manager level Ownership Number of firms 464 87 75 41 34 26 21 4 Blockholder ownership, % 43. 34. 5 34. 4 24. 0 22. 7 13. 0 12. 7 5. 8 Tobin’s Q 1. 952 2. 033 1. 736 2. 109 2. 113 2. 257 1. 933 1. 808 Total assets employed 393,861 44,093 26,186 34,322 35,864 28,190 14,234 10,127 Capital expenditures/ assets employed 0. 106 0. 161 0. 124 0. 117 0. 114 0. 100 0. 099 0. 114 Liquidity 0. 130 0. 129 0. 157 0. 194 0. 194 0. 177 0. 169 0. 239 0VMOb10% 10VMOb20% 20VMOb30% 30VMOb40% 40VMOb50% 50VMOb60% 60VMOb70% 70VMOb100% Managerial ownership (MO) data measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder ownership measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Capital expenditure (thousands), total assets employed (thousands), after tax profits and equity market values (millions) are collected from Datastream. Liquidity is measured as cashflow divided by total assets employed. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. 652 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 3 Regression results for Tobin’s Q on managerial ownership Variable Coefficient t-Statistic Adj. R 2 Intercept 1. 85 28. 14 0. 017 MO 0. 12 3. 23 MO2 A0. 013 A3. 08 F MO3 4. 63A10 2. 82 2. 651 A4 MO4 A6. 73A10 A2. 53 A6 MO5 3. 36A10A8 2. 24 The following equation was estimated using data for 752 firms listed on the London Stock Exchange during 1995. Q ? a0 ? a1 MO ? a2 MO2 ? a3 MO3 ? a4 MO4 ? a5 MO5 ? e where Q is Tobin’s Q and MO is managerial ownership. Ownership data is taken from the London Stock Exchange Yearbook and Tobin’s Q is calculated from Datastream. which owned at least 40% of all outstanding equity. As would be expected, outside blockholder ownership decreases with managerial ownership. At managerial ownership levels of 30%, blockholder ownership is slightly less at 24%. It is probable that external discipline, as provided by blockholders, would still be strong at these levels of managerial holdings, particularly where informal coalitions among blockholders are more prominent (Short and Keasey, 1999). At higher levels of managerial holdings, blockholder ownership decreases sharply leading to a collapse in the power of blockholders. Managerial ownership is a decreasing function of company size, which is consistent with Demsetz and Lehn (1985). Although firm sizes in the UK are considerably smaller than US firms, the ratios in Table 2 are similar to summary statistics provided in Morck et al. (1988), McConnell and Servaes (1990), Cho (1998) and Himmelberg et al. (1999). Table 2 also illustrates the nonlinear relationship between Tobin’s Q and managerial holdings. Visual inspection indicates two maximum points in the region of 10% to 20% and 50% to 60%, respectively. The convergence of managerial interests to those of shareholders at very high levels of ownership is not apparent at this stage because of the small number of companies with managerial holdings above 70%. However, the statistics for all other groupings are consistent with our theoretical motivation. 3. 2. Estimation of ownership breakpoints In order to model the Tobin’s Q–managerial ownership (MO) function as having two maximum and two minimum turning points, we specify a quintic function, as follows: Q ? 0 ? a1 MO ? a2 MO2 ? a3 MO3 ? a4 MO4 ? a5 MO5 ? e ? 2? For the nonlinear relationship discussed in Section 2 to be valid, the coefficients in Eq. (2) must have the following signs: a 0N0; a 1N0; a 2b0; a 3N0; a 4b0; a 5N0. The estimated values of the coefficients in Eq. (2) are given in Table 3. 9 The intercept coefficient, which is an estimate of Tobin’s Q i n firms with no managerial holdings, is 1. 85. Each slope coefficient is of the correct sign and statistically significant at the 5% level. Although the It is clear that Tobin’s Q will be in influenced by more than just managerial ownership. However, the objective of this paper is to investigate whether the standard quadratic and cubic specifications used in previous studies are too simplistic. To maintain parsimony, we therefore omit other factors from this specific model. Other relevant factors are incorporated into the analysis in a later table. 9 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 653 Estimated Relationship between Tobin's Q and Managerial Ownership 2. 40 2. 20 2. 00 1. 80 1. 60 1. 40 1. 20 0 0. 1 0. 2 0. 3 0. 4 0. 5 0. 6 0. 7 0. 8 0. 9 Tobin's Q Insider Ownership Fig. 1. Estimated relationship between Tobin’s Q and Managerial Ownership. Tobin’s Q was modelled as a quintic function of insider ownership using ordinary least squares regression. The estimated regression line is: Q=1. 85+0. 12IOA0. 013OI2+4. 63A10A4IO3A6. 73A10A6IO4+3. 36A10A8IO5. adjusted R 2 is low, it is similar to that found in comparable US studies. The use of this model as a basis to estimate managerial ownership turning points leads to four critical values: 7. 01%, 26. 0%, 51. 4%, 75. 7% and is illustrated in Fig. 1. To establish the robustness of our regression model, the spline approach as applied by Morck et al. (1988), Cho (1998) and Himmelberg et al. (1999) to estimate breakpoints was carried out using our generated turning points. Table 4 presents the coefficients resulting from the piecewise linear regression. Similar to Table 3, each coefficient has the expected sign and all but one variable is statistically significant at the 5% level. The only variable that is not significant, MOover 76% , has the correct sign. The probable cause for the lack of significance is the small number of firms in this managerial ownership grouping. An examination of these results suggests that Tobin’s Q increases in firms for managerial ownership levels up to 7% and then declines to ownership levels of 26%. This is almost identical to the turning points in Morck et al. (1988) and Himmelberg et al. (1999) (5% and 25%, respectively) and is comparable to Cho (1998), who uses breakpoints of 7% and 38%. However, it differs from the UK studies of Short and Keasey (1999) and Faccio and Lasfer (1999) who each reports two turning points of 12. 99% and 41. 99%, and 19. 68% and 54. 12%, respectively. Earlier studies limited the turning points to two but in our extension, it is clear that there are another two turning points at much higher levels of managerial ownership. It also appears that market discipline has an influence on managerial objectives up to the point where the board takes complete control (51%). Tobin’s Q then decreases until ownership levels reach 76%, after which Q increases. Denis and Sarin (1999) argue that cross-sectional studies may be subject to bias, whereby they fail to account for events with potentially large valuation consequences. 10 10 Examples of such events may include receiving a takeover bid, top management turnover, etc. 654 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 4 Spline regression results for Tobin’s Q on managerial ownership Variable Coefficient t-Statistic Adj. R 2 Intercept 1. 854 28. 38 0. 012 MOup 0. 056 2. 93 to 7% MO7% to 26% MO26% 0. 0187 2. 57 2. 769 to 51% MO51% A0. 053 A1. 99 to 76% MOover 0. 624 1. 12 76% A0. 020 A2. 62 F The following equation was estimated using data for 752 firms listed on the London Stock Exchange during 1995. Q ? a0 ? a1 MOup to 7% ? a2 MO7% to 26% a3 MO26% to 51% ? a4 MO51%to 76% ? a5 MOover 76% ?e where Q is Tobin’s Q and MOup to 7%=managerial ownership if managerial ownership b7%, =7% if managerial ownershipN7%. MO7% to 26%=0 if managerial ownership b7%, =managerial ownership minus 7% if 7%bmanagerial ownershipb26%, =26% if managerial ownershipN26%. MO26% to 51%=0 if managerial ownershipb26%, =managerial ownership m inus 26% if 26%bmanagerial ownershipb51%, =51% if managerial ownershipN51%. MO51% to 76%=0 if managerial ownership b51%, =managerial ownership minus 51% if 51%bmanagerial ownershipb76%, =76% if managerial ownership N26%. MOover 76%=0 if managerial ownershipb76%, =managerial ownership minus 76% if managerial ownershipN76%. Ownership data is taken from the London Stock Exchange Yearbook and Tobin’s Q is calculated from Datastream. As a further test of robustness, we carried out the quintic analysis for managerial ownership and Tobin’s Q for the same sample of available firms in 1997. 11 Again, each coefficient was significant with the correct signs and the turning points from the estimated model were relatively stable at 7. 9%, 26. 5%, 55. 2% and 86. 2%. . 3. Endogeneity of managerial equity ownership, investment and corporate value To analyse the effects of endogeneity in the managerial ownership, investment and corporate value relationship, we follow Cho (1998) and carry out a simultaneous equations analysis using two-stage least squares. Cho (1998) and Himmelberg et al. (1999) showed that once endogeneity was controlled, the perceived impact of managerial ownership on corporate value d isappeared. Moreover, corporate value was found to positively affect levels of managerial ownership. It is possible that if the model specification employed by these studies is wrong, what appears to be a lack of statistical significance in the endogenous variables in the simultaneous equations analysis may actually be due to errors in variables arising from the intermediate regressions. We re-run the two-stage least squares analysis of Cho (1998) using our more complex specification. 12 The control variables in our regression are the same as in Cho (1998). Namely, managerial ownership, investment and corporate value are Some firms fell out of the sample because of mergers, delisting, and being taken over. Cho (1998) also attempts to control for specification error by re-estimating his simultaneous regression analysis using managerial ownership as a linear variable and again finds no relationship between managerial ownership and corporate value. However, if indeed there is a nonlinear relationship between ownership and corporate value, such an approach would fail to capture this. 12 11 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 655 defined to be endogenously determined by each other as well as some additional relevant exogenous variables. That is: Managerial Ownership ? ? market value of firm0s common equity; corporate value; investment; volatility of earnings; liquidity; industry? Corporate Value ? g? managerial ownership; investment; leverage; asset size; industry; block ownership; largest stakeholder? Investment ? h? managerial ownership; corporate value; volatility of earnings; liquidity; industry? For comparability, we define each of the above vari ables as in Cho (1998). For each company, industry dummy variables are set equal to one for each Financial Times Industry Classification (FTIC) grouping that sample firms lie within, and zero otherwise. In addition to the variables used by Cho (1998), we include blockholder ownership and largest stakeholder in the corporate value regressions to reflect the potential impact of blockholder discipline in the UK and the role of a founding or dominant individual on corporate value. All accounting and market variables are taken at the financial year-end from Datastream. In Table 5, we report results from the simultaneous equations analysis. Taking the managerial ownership regression first, all variables with the exception of investment have coefficients with the expected sign. Managerial ownership is negatively related to the market value of equity, which reflects the fact that wealth constraints and risk-aversion will prevent managers from holding substantial stakes in large firms. Firm level liquidity is shown to be positively related to managerial ownership, which is a stronger result than Cho (1998) who reported no significance for this variable. Importantly, Tobin’s Q is found to be significant and positively related to the level of managerial ownership. This is consistent with Cho (1998) but is opposed to Demsetz and Villalonga (2001), who find the opposite effect. This result suggests that managers tend to hold larger stakes in firms that are successful or have higher corporate value. This may also be indicative of successful managers benefiting from equity-related compensation policies. The investment variable, which has a negative impact on managerial ownership is surprising as theory predicts that firm level investment will be positively related to managerial ownership. Himmelberg et al. (1999) contend that firms with high investment spending will have high managerial ownership to alleviate the monitoring problem caused by discretionary managerial spending. However, Jensen (1986) argued that firms may overinvest as a result of an earnings retention conflict, rather than underinvest as Jensen and Meckling’s (1976) moral hazard theory would predict. When a firm is in this situation, managers may be able to maximise their size-related compensation by overinvesting, but are aware that this may ultimately reduce the value of their shareholdings. Although tentative, this could in part explain the negative relation between investment and ownership. Cho (1998) also finds a negative (but insignificant) coefficient on the investment variable using both capital and research and development expenditures. 56 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Table 5 Simultaneous equations analysis of managerial ownership, corporate value and investment Variable MVEQ Tobin’s Q Volatility Liquidity Investment Leverage Asset size Largest stakeholder Blockholder ownership MO MO2 MO3 MO4 MO5 Industry dummies Adj. R 2 F Managerial ownership A1. 8A10 (A3. 74) 0. 127 (4. 63) A1. 0A10A6 (A0. 74) 0. 035 (2. 24) A1. 314 (A2. 67) A5 Corporate value Investment 0. 073 (2. 35) 3. 89A10A6 (A2. 86) 0. 013 (1. 01) Yes 0. 045 8. 014 5. 136 (2. 23) 1. 088 (4. 36) 3. 33A10A8 (1. 17) A0. 20 (A0. 06) A0. 837 (A2. 60) 1. 588 (3. 07) A0. 395 (A2. 22) 0. 037 (1. 64) A0. 001 (A1. 14) 1. 9A10A5 (0. 76) Yes 0. 033 3. 497 A0. 035 (A0. 46) 0. 018 (0. 72) A0. 003 (A0. 92) 1. 72A10A4 (1. 03) A3. 12A10A7 (A1. 07) Yes 0. 009 2. 497 Results from a simultaneous equations analysis of managerial ownership, corporate value and investment for 752 firms, using the two-stage least squares method to estimate the following equations: Managerial Ownership ? f ? market value of firm0s common equity; corporate value; investment; volatility of earnings; liquidity; industry? CorporateValue ? g? anagerial ownership; investment; financial leverage; asset size; industry; block ownership; largest stakeholder? Investment ? h? managerial owner ship; corporate value; volatility of earnings; liquidity; industry? In the above equations, managerial ownership measures the total level of holdings held by company management that are greater than 0. 5% of a company’s equity. Blockholder data measures the total level of holdings by outside blockholders that are greater than 3% of a company’s equity. Largest stakeholder is the largest single outside blockholder that holds at least 3% of company’s outstanding equity. Investment is defined as capital expenditure divided by total assets employed, leverage is the ratio of total debt to total assets employed and liquidity is measured as cashflow divided by total assets employed. Capital expenditure, total assets employed, after tax profits, depreciation, leverage, equity market values and profit volatilities are collected from Datastream. Tobin’s Q is measured as the ratio of the market value of equity and book values of debt and preferred equity to the book value of assets in the firm minus current liabilities. Shareholdings data is taken from the London Stock Exchange Yearbook for 1996 and 1997. All data are for industrial companies quoted on the London Stock Exchange in 1995. t-Statistics are in parenthesis. The estimated coefficients from the corporate value regression are given in the second column of Table 5. Corporate value is shown to be positively related to investment and leverage. While the investment coefficient is as expected, the sign of the leverage variable requires more discussion. Morck et al. 1988) find that leverage has a negative but insignificant impact on corporate value and attribute this to the possibility of managers in highly levered firms holding a higher than average level of ownership. However consistent with our results, McConnell and Servaes (1990) report a positive significant coefficient for leverage. Leverage can have various effects on firm value. The notion that high debt levels lead to greater corporate value has been argued by Modigliani and Miller (196 3) with respect J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 57 to valuable tax shields, Ross (1977) and Myers (1977) with respect to a signalling hypothesis and Jensen’s (1986) free cashflow hypothesis. Ultimately, leverage is one way of imposing external discipline on management and if it is effective, will lead to increased corporate value. Alternatively, Demsetz and Villalonga (2001) interpret a negative association between leverage and firm value as being due to relative inflation between the current time period and the earlier time period where companies had issued much of their debt. We view the most important result from the corporate value regression as being the significance of the managerial ownership variables. Our results indicate that although managerial ownership levels are determined by corporate value, corporate value itself is determined in part by managerial ownership. This finding is at odds with Cho (1998) and Himmelberg et al. (1999) but consistent with the classical view of Jensen and Meckling (1976) and empirical work by Morck et al. (1988) and McConnell and Servaes (1990). An interesting result is that blockholder ownership is shown to negatively impact Tobin’s Q. This result is consistent with Faccio and Lasfer (1999, 2000). McConnell and Servaes (1990) suggest that this could be due to a conflict of interests, which results from blockholders being forced into aligning themselves with managers so as not to jeopardize their other dealings with the firm. Alternatively, the negative coefficient may be explained by the strategic alignment hypothesis, which argues that blockholders and managers find it mutually beneficial to cooperate with each other. Finally, such findings may be consistent with the arguments of Burkart et al. 1997) in that too much block ownership will overly constrain management and reduce their ability to take value-maximising investment decisions. The investment regression coefficients presented in column three of Table 5 show a significant positive effect of corporate value on investment and a negative effect of profit volatility on investment. The finding that corporate value has a positive effect on investment is consisten t with the arguments of Cho (1998) that highly valued firms will have large investment opportunities. Also, firms with variable earnings will be reluctant to invest if future income is uncertain. Managerial ownership is found to have no impact on firm level investment. However, this may reflect optimality in that investment policy may be one way in which managers affect value, but not the only means. Ultimately we view our findings of a causal relation between ownership and firm value as being of greater significance than the lack of a relation between ownership and investment. These results are consistent with Cho (1998) but slightly stronger, in that volatility of earnings is significant in our regressions but insignificant in Cho (1998). . Conclusions Debate as to the relationship between corporate value and managerial ownership in the US is still unresolved. Studies such as Morck et al. (1988), McConnell and Servaes (1990), and Hermalin and Weisbach (1991) document a nonlinear relation between these two variables. More recent work by Cho (1998), Himmelberg et al. (1999), and Demsetz and Villalonga (2001) shows that when controlling for endogeneity, managerial ownership is determined by corporate value but not vice-versa. 658 J. R. Davies et al. Journal of Corporate Finance 11 (2005) 645–660 We argue that even accepting that corporate value and managerial ownership are endogenously related to each other, misspecification of the managerial holding–corporate value relationship may lead to spurious conclusions concerning the direction of causality. Applying a quintic structure, we present results which suggest that the correct form of this relationship is a double humped curve. This is in contrast to other studies that have assumed a cubic or quadratic specification and by construction only one hump. The second hump or local maximum is attributed to a collapse in external market discipline at or around the point where managers take overall control of their firm. At this point, which is around 50% ownership, the management is not sufficiently akin to owners but have sufficient power to disregard any form of external monitoring or discipline. This has a detrimental affect on corporate value for a short window of managerial holdings. At high levels of managerial ownership, managers are effectively majority owners of their firm leading to a convergence of interests with other outside shareholders. Utilizing the quintic specification for managerial ownership, we show that even when controlling for endogeneity, not only is corporate value a determinant of managerial ownership but managerial ownership is also a determinant of corporate value. This finding is consistent with the classical work of Jensen and Meckling (1976), as well as the early empirical work of Morck et al. (1988) and McConnell and Servaes (1990) who do not control for endogeneity in their analysis of corporate value and managerial ownership. We believe our analysis to have several important contributions to the literature on the relationship between managerial ownership and corporate value. First, our quintic specification extends previous work in this area and successfully captures the complex nonlinear relationship between corporate value and managerial ownership. Second, by analysing a completely different market which is similar in structure to the United States, we strengthen the power and insights gained from earlier comparable US studies. Third, we provide evidence that corporate value, firm level investment and managerial holdings are interdependent with each other. This has implications for the debate on the effectiveness of compensation policies involving stock options for top managers. Moreover, our findings suggest that some levels of managerial ownership may not be beneficial to outside shareholders even when these levels are high. At the very least, this paper has served to add to the debate concerning the importance of managerial ownership on corporate value by providing evidence that even controlling for endogenous effects, managerial ownership and stock compensation schemes do have a significant influence on corporate value. Our research has provided an initial step towards a more accurate characterisation of the corporate value–managerial ownership relationship. While we do not posit that our specification can be applied to every given data set, we argue that previous research may be misspecified where it has failed to fully explore alternative specifications of the managerial ownership–corporate value relationship. Future work in this area may focus on other structural forms, which more effectively reflect the interdependence of managerial ownership and corporate prospects. The nonlinear endogenous impact of blockholders on corporate value and managerial ownership would also provide interesting insights on the external discipline that is faced by firm managers and the impact this has on corporate value. J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 659 Acknowledgements The authors would like to thank John Capstaff, Scott Linn, Andrew Marshall, James Wansley and seminar participants at the Financial Management Association International (2001), European Financial Management Association (2002), Dublin Economics Workshop, the University of Strathclyde and an anonymous referee for their valuable comments on earlier versions of the paper. The normal caveat applies. References Burkart, M. , Gromb, D. , Panunzi, F. , 1997. Large shareholders, monitoring, and the value of the firm. Quarterly Journal of Economics 112, 693 – 728. Cho, M. H. , 1998. Ownership structure, investment, and the corporate value: an empirical analysis. Journal of Financial Economics 47, 103 – 121. Chung, K. H. , Pruitt, S. W. , 1994. A simple approximation of Tobin’s Q. Financial Management 23, 70 – 74. Dahya, J. , McConnell, J. J. , Travlos, N. G. , 2002. The Cadbury committee, corporate performance and top management turnover. Journal of Finance 57, 461 – 483. Demsetz, H. , Lehn, K. , 1985. The structure of corporate ownership: causes and consequences. Journal of Political Economy 93, 1155 – 1177. Demsetz, H. , Villalonga, B. , 2001. Ownership structure and corporate performance. Journal of Corporate Finance 7, 209 – 233. Denis, D. J. , Sarin, A. , 1999. Ownership and board structures in publicly traded corporations. Journal of Financial Economics 52, 187 – 223. Denis, D. J. , Denis, D. K. , Sarin, A. , 1997. Ownership structure and top executive turnover. Journal of Financial Economics 45, 193 – 221. Doukas, J. A. , McKnight, P. J. , Pantzalis, C. , 2002. Security analysis, agency costs and UK firm characteristics. Working Paper. Faccio, M. , Lasfer, M. A. , 1999. Managerial ownership, board structure and firm value: the UK evidence. Working Paper. Faccio, M. , Lasfer, M. A. , 2000. Do occupational pension funds monitor firms in which they hold large stakes? Journal of Corporate Finance 6, 71 – 110. Fama, E. F. , 1980. Agency problems and the theory of the firm. Journal of Political Economy 88, 288 – 307. Franks, J. , Mayer, C. , 1996. Hostile takeovers and the correction of management failure. Journal of Financial Economics 40, 163 – 181. Franks, J. , Mayer, C. , Renneboog, L. , 2001. Who disciplines management in poorly performing companies? Journal of Financial Intermediation 10, 209 – 248. Hart, O. D. , 1983. The market mechanism as an incentive scheme. Bell Journal of Economics 14, 366 – 382. Hermalin, B. Weisbach, M. , 1991. The effects of board composition and direct incentives on firm performance. Financial Management 20, 101 – 112. Himmelberg, C. P. , Hubbard, R. G. , Palia, D. , 1999. Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Econ omics 53, 353 – 384. Jensen, M. C. , 1986. Agency costs of free cashflow, corporate finance and takeovers. American Economic Review 76, 323 – 329. Jensen, M. C. , Meckling, W. H. , 1976. Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305 – 360. Jensen, M. C. , Ruback, R. S. , 1983. The market for corporate control: the scientific evidence. Journal of Financial Economics 11, 5 – 50. Kole, S. , 1995. Measuring managerial equity ownership: a comparison of sources of ownership data. Journal of Corporate Finance 1, 413 – 435. Lewellen, W. G. , Badrinath, S. G. , 1997. On the measurement of Tobin’s Q. Journal of Financial Economics 44, 77 – 122. 660 J. R. Davies et al. / Journal of Corporate Finance 11 (2005) 645–660 Lindenberg, E. , Ross, S. , 1981. Tobin’s Q ratio and the industrial organization. Journal of Business 54, 1 – 33. Martin, K. J. , McConnell, J. J. , 1991. Corporate performance, corporate takeovers, and management turnover. Journal of Finance 46, 671 – 687. McConnell, J. J. , Servaes, H. , 1990. Additional evidence on equity ownership and corporate value. Journal of Financial Economics 27, 595 – 612. Modigliani, F. , Miller, M. H. , 1963. Corporate income taxes and the cost of capital: a correction. American Economic Review 53, 433 – 443. Morck, R. , Shleifer, A. , Vishny, R. W. , 1988. Management ownership and market valuation: an empirical analysis. Journal of Financial Economics 20, 293 – 315. Myers, S. C. , 1977. Determinants of corporate borrowing. Journal of Financial Economics 5, 147 – 175. Roe, M. J. , 1990. Political and legal restraints on ownership and control of public companies. Journal of Financial Economics 27, 7 – 42. Ross, S. A. , 1977. The determination of financial structure: the incentive-signalling approach. Bell Journal of Economics 8, 23 – 40. Short, H. , Keasey, K. , 1999. Managerial ownership and the performance of firms: evidence from the UK. Journal of Corporate Finance 5, 79 – 101. Stulz, R. E. , 1988. Managerial control of voting rights: financing policies and the market for corporate control. Journal of Financial Economics 20, 25 – 54.

Saturday, January 4, 2020

Impact On Indian Banking Finance Essay - Free Essay Example

Sample details Pages: 10 Words: 2972 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The Indian banking industry is considered as a blooming and the secure in the world. The paper deals with the banking sector reforms and it has been discussed that how far Indian banks are able to manage their risks by introduction of banking sector reforms.  Ãƒâ€šÃ‚  Further the paper has discussed an evaluation of Basel Norms and their impact on economic growth of the country since from the globalization. It will also through light on Emergence of BASEl-3 and its impact on banking in India.  The role of banks in India has changed a lot since economic reforms of 1991. Don’t waste time! Our writers will create an original "Impact On Indian Banking Finance Essay" essay for you Create order These changes came due to LPG, i.e. liberalization, privatization and globalization policy being followed by GOI. Since then most traditional and outdated concepts, practices, procedures and methods of banking have changed significantly.  Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. This type of condition sometimes causes bank failure, if not properly managed. So banks need to manage their risk by proper provisioning. The introduction of Basel- Norms is one of the initiatives for that. As per RBI estimates, about a third of the total flow in the financial sector passes through the banks. Obviously, banks are an important part of the financial sector. Reforms in the financial and the banking sectors would enable better financial products. This will allow financial viability and help the econo my. Key Words: Banking Sector, Reforms, Economy, Inflation, Growth Introduction- Indian banking sector has undergone major changes and reforms during economic reforms. Though it was a part of overall economic reforms, it has changed the very functioning of Indian banks. This reform has not only influenced the productivity and efficiency of many of the Indian Banks, but has left everlasting footprints on the working of the banking sector in India. The efficient, dynamic and effective banking sector plays a decisive role in accelerating the rate of economic growth in any economy. The Government of India introduced economic and financial sector reforms in 1991 and banking sector reforms were part and parcel of financial sector reforms. These were initiated in 1991 to make Indian banking sector more efficient, strong and dynamic. Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges. The RBI has given lic ences to new private sector banks as part of the liberalisation process. The RBI has also been granting licences to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines. This chapter focuses on Indias banking sector, which has been attracting increasing attention since 1991 when a financial reform programme was launched. It assesses whether the reform programme has been successful so far in restructuring public-sector banks. Role of BASEL-The objective of the Basel Committees reform package is to improve the banking sectors ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. A strong and resilient banking system is the foundation for sustainable economic growth, as banks are at the centre of the credit intermediation process between savers and investors. Moreover, banks provide critical services to consumers, small and medium-sized enterprises, large corporate firms and governments who rely on them to conduct their daily business, both at a domestic and international level. To address the market failures revealed by the crisis, the BASEL Committee is introducing a number of fundamental reforms to the international regulatory framework. The reforms strengthen bank-level, or micro prudential, regulation, which will help raise the resilience of individual banking institutions to periods o f stress. The reforms also have a macro prudential focus, addressing system wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time. Clearly these two micro and macroprudential approaches to supervision are interrelated, as greater resilience at the individual bank level reduces the risk of system wide shocks. About BASEL Norms The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. The Committees Secretariat is located at the Bank for International Settlements (BIS) in Basel, Switzerland. The committee drafted a first document to set up an international minimum amount of capital that banks should hold. This minimum is a percentage of the total capital of a bank, which is also called the minimum risk-based capital adequacy. In 1988, the Basel I Capital Accord (agreement) was created. In 1988, BCBS(Basel committee for Banking Supervision) introduced capital measurement system called Basel capital accord, also called as Basel 1. Basel I define capital based on two tiers: Tier 1 (Core Capital): Tier 1 capital includes stock issues (or share holders equity) and declared reserves, such as loan loss reserves set aside to cushion future losses or for smoothing out income variations. It focused almost entirely on credit risk. Tier 2 (Supplementary Capital): Tier 2 capital includes all other capital such as gains on investment assets, long-term debt with maturity greater than five years and hidden reserves (i.e. excess allowance for losses on loans and leases). However, short-term unsecured debts (or debts without guarantees), are not included in the definition of capital. BASEL-1, defined capital and structure of risk weights for banks. The minimum capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets with different risk profiles. A portfolio approach was taken to the measure of risk, with assets classified into four buckets (0%, 20%, 50% and 100%) according to the debtor category For example, an asset backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999. Although BASEL-1was the first international instrument assessing the importance of risk in relation to capital was a milestone in the finance and banking history, even then it suffers many limitations. As fixation of 8% capital ratio to protect banks from credit risk similarly no recognition was given to risk associated with maturity of credit, risk associated with different currencies and macroeconomics risk. Due to these limitations Basel Committee decided to propose a more risk-sensitive framework in June 1999 which is known as BASEl-11 accord. BASEL-II- The objective of BASEl-11 was to promote safety and soundness in the financial system; Enhance competitive equality; Constitute a more comprehensive approach to addressing risks; and to develop approaches to capital adequacy that are appropriately sensitive to the degree of risk involved in a banks positions and activities. The Basel II capital accord is a three-pillared framework. Minimum Capital Requirement: Based on certain calculations minimum capital requirement has to be maintained. The Supervisory Review Process: The Central Bank (RBI) of the country has to ensure that each bank has an adequate capital to adopt better management techniques. Market Discipline: There should be a mandatory disclosure on risk management practices with transparency. Basel II provides three approaches of increasing sophistication to the calculation of credit risk capital; the Standardised Approach (SA), the Foundation Internal Ratings Based Approach and the Advanced Internal Ratings Based Approach (AIRB). Basel II also introduced capital requirements for operational risk (OR) for the first time. Implementation in India- The process of implementing Basel II norms in India was planned to being carried out in phases. Phase I was for foreign banks operating in India and Indian banks having operational presence outside India with effect from March 31,2008. In phase II, all other scheduled commercial banks (except Local Area Banks and RRBs) were adhere to Basel II guidelines by March 31, 2009. With the deadline of March 31, 2009 for full implementation of Basel II norms fast approaching, banks are looking to maintain a cushion in their respective capital reserves. The minimum capital to risk-weighted asset ratio (CRAR) in India was placed at 9%, one percentage point above the Basel II requirement. All the banks have their Capital to Risk Weighted Assets Ratio (CRAR) above the stipulated requirement of Basel guidelines (8%) and RBI guidelines (9%). As per Basel II norms, Indian banks should maintain tier I capital of at least 6%. The hurdles which were faced by India for implementation of BASEL-II were that first of all there is a need for improved risk management and measurement. It aims to give impetus to the use of internal rating system by the international banks. Second requirement is to arrange risk capital requirement by the banks. Also, Basel II gives some scope to extend the rating of issues to issuers, this would only be an approximation and it would be necessary for the system to move to ratings of issuers. Encouraging ratings of issuers would be a challenge. BASEL-III- Basel III released in December, 2010 is the third in the series of Basel Accords. Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. Its aim is to improve the banking sectors ability to absorb shocks arising from financial and economic stress, improve risk management and governance, strengthen banks transparency and disclosures. The Basel III which is to be implemented by banks in India as per the guidelines issued by RBI from time to time, will be challenging task not only for the banks but also for GOI. It is estimated that Indian banks will be required to rais Rs 6,00,000 crores in external capital in next nine years or so i.e. by 2020 Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to improve the banking sectors ability to absorb shocks arising from financial and economic stress, whatever the source improve risk management and governance strengthen banks transparency and disclosures. Features of BASL-3- The features of BASEL-III, which make it more stringent than BASEL-I and II are as follows. Basel III aim is to introduction of much stricter definition of capital. Better quality capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand periods of stress. By introduction of Basel III banks will be required to hold a capital conservation buffer of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress. The countercyclical buffer has been introduced with the objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity when it overheats and will encourage lending when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital. The minimum requirement for common equity, the highest form of loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total capital will increase to 10.5% when combined with the conservation buffer. Under Basel III, a framework for liquidity risk management will be created. A new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018, respectively. Comparison of Basel-II and Basel-III Requirements Under Basel II Under Basel III Minimum Ratio of Total Capital To RWAs 8% 10.50% Minimum Ratio of Common Equity to RWAs 2% 4.50% to 7.00% Tier I capital to RWAs 4% 6.00% Core Tier I capital to RWAs 2% 5.00% Capital Conservation Buffers to RWAs None 2.50% Leverage Ratio None 3.00% Countercyclical Buffer None 0% to 2.50% Minimum Liquidity Coverage Ratio None TBD1 (2015) Minimum Net Stable Funding Ratio None TBD1 (2018) Systemically important Financial Institutions Charge None TBD1 (2011)          (TBD-To be Determined)1 Literature Review- Several previous studies describe the reform effort and the inefficiency of the banks. IMF (2004 and 2005) provides an overview of the most recent reforms and Barnett (2004) reviews the structure and recent developments in the banking sector. For a review of previous banking system reforms, since the mid-1990s, see Karacadag (2003). Strengthening financial systems has been one of the central issues facing emerging markets and developing economies. This is because sound financial systems serve as an important channel for achieving economic growth through the mobilization of financial savings, putting them to productive use and transforming various risks (Beck, Levin and Loayza 1999; King and Levin 1993; Rajan and Zingales 1998; Demirg-Kunt, Asli and Maksimovic 1998; Jayaratne and Strahan 1996). Many countries including India adopted a series of financial sector liberalization measures in the late 1980s and early 1990s that included interest rate liberalization, entr y deregulations, reduction of reserve requirements and removal of credit allocation. It has been argued by a number of economists that a well-developed financial system enables smooth flow of savings and investments and hence, supports economic growth (see King and Levine, 1993, Goldsmith, 1969). A healthy financial system can help achieve efficient allocation of resources across time and space by reducing inefficiencies arising out of market frictions and other socio-economic factors. Analysis of BASEL-III in Indian Context- Presently, a banks capital comprises Tier 1 and Tier 2 capital with a restriction that Tier 2 capital cannot be more than 100% of Tier 1 capital. Within Tier 1 capital, innovative instruments are limited to 15% of Tier 1 capital. Further, Perpetual Non-Cumulative Preference Shares along with Innovative Tier 1 instruments should not exceed 40% of total Tier 1 capital at any point of time. Within Tier 2 capital, subordinated debt is limited to a maximum of 50% of Tier 1 capital. However, under Basel III, with a view to improving the quality of capital, the Tier 1 capital will predominantly consist of Common Equity. At present, the regulatory adjustments (i.e. deductions and prudential filters) to capital vary across jurisdictions. A revised version of this document was issued in June 2011, generally applied to total Tier 1 capital or to a combination of Tier 1 and Tier 2 capital. They are not generally applied to the Common Equity component of T ier 1 capital. With a view to improving the quality of Common Equity and also consistency of regulatory adjustments across jurisdictions, most of the adjustments under Basel III will be made from Common Equity The qualifying criteria for instruments to be included in Additional Tier 1 capital outside the Common Equity element as well as Tier 2 capital will be strengthened. This requirement will improve the market discipline under Pillar 3 of the Basel II framework The minimum Common Equity, Tier 1 and Total Capital requirements will be phased-in between January 1, 2013 and January 1, 2015, as indicated below. As a percentage of risk weighted assets.(RWA) January 1,2013 January 1,2014 January 1,2015 Minimum Common equity Tier-1 Capital 3.5% 4% 4.5% Minimum Tier-1 Capital 4.5% 5.5% 6% Minimum total Tier-1 Capital 8% 8% 8% Implementation of Basel III is expected to result in a decline in Indian banks Roe [return on equity] in the short term, Governor Subbarao said, speaking at a banking conference in Mumbai, while stressing that the reforms would benefit Indias overall financial system in the longer term. The global Basel III requirements, which require all banks to hold top quality capital equal to 7 per cent of their assets, adjusted for risk, are aimed at improving financial stability and avoiding a repeat of the crisis of 2008. But the sharply higher capital requirements have drawn warnings from analysts and financiers about their impact on banking lending rates and wider economic growth across the developing world. Conclusion- By implementation of the Basel III norms, the capital of many banks will reduce by around 60% because of the phased removal of certain components of capital from Tier 1. In addition, the risk weightings are expected to grow by nearly 200%. The twin impact of these two stipulations will greatly reduce the ROE and the profitability of banks. The proposed shift from short-term to long-term liquidity will increase the cost of funds for the banking system. This will further squeeze the banks profit margins. One of the basic tenets of prudent banking is to borrow long and lend short. There must be a match between the duration of liabilities and the duration of assets, which is at the heart of asset-liability management. Long duration assets were acquired with short duration funding. However, it is a known fact that illiquid banks will soon become insolvent. The leverage ratio of Indian banks is moderate, and hence, not a cause for concern. However, with capital dilution, increased risk weightings and ceilings on derivative trading, the new leverage ratio will impact the lending capability of the banks. As India is a developing economy, the shrinkage of bank credit can set in recessionary trends. Further, the developmental agenda of the Indian banks will take a backseat in such a situation. While systemic stability is welcome, it cannot be at the cost of the larger economic goals of poverty alleviation, employment generation, priority sector lending and balanced regional growth. Therefore, it is opined that the new regime of prudential regulations will result in greater stability of the banking industry in various countries. Exercising controls on the capital, liquidity and leveraging of banks will ensure that they have the ability to withstand crises.

Friday, December 27, 2019

Objectives Of Strategic Staffing Planning - 1431 Words

The purpose of Strategic staffing planning is identifying and integrate short term staffing actions with longer term environment of business strategy. Staffing Planning is essential to establish adequate staffing guidelines and forecasting necessary to organizational success. Moreover, staffing planning is a process that outlines and addresses staffing ramifications of strategic operational plans. Workforce planning is crucial to company’s performance, because the positions may experience longer replacement times. As a result, strategic planning efforts consisted of aggregate and succession planning; however, aggregate identifies the employment needs for lower-level, positons. Succession Planning focuses on organization’s authoritative†¦show more content†¦Strategic staff planning, for each employee should be in alignment to the organizations needs by conducting a performing a detailed job analysis (Lynn, 2016). Although, planning and strategizing are two el ements of acquiring a successful training programs in organizations. In addition, there are three levels of analysis: organizational, task, and individual. The analysis will show how the training will benefit the organization and it should include cost. It is important, to include the task level assessment, because this process entails reviewing specific duties, tasks and skill levels needed to perform each task. An Individual level assessment reflects, of the employee that will receive training; furthermore, an analysis is required on their current skill levels, for example, learning style, personality, interpersonal interactions including physical and mental conditions. The reasoning is to decide the appropriate material to develop for training (Mello, 2015). Unfortunately, if the training, performance measurements are not integrated, there is less opportunity for correction and reinforcement. Granted, training should be delivered with a strategic context to ensure the organizat ion’s success (Mello, 2015). According to Chapman, training is important, because it is developing employable skills set. In contrast, assessing and improving effective training is key, but enablingShow MoreRelatedHow Strategic Management Plan And The Human Resource Planning Process1410 Words   |  6 PagesFor this assignment we will examine how strategic management plans are established and redefine to keep the organizations moving forward in growth. Management promotes and brings about a change in the structure to keep it active and efficient in the approaches to achieving its goals and objective. The strategy behind the approaches correlation is what leads to actually implementing and providing data to analyze on an ongoing basis to enhance the strategic plan of the organization. The relationshipRead MoreDeveloping the Strategic Plan for Civista Medical Center as They Implement a Cardiac Rehabilitation Program1126 Words   |  5 PagesFinancial planning is a key element in the implementation of the strategic plan to ensure organizational objectives are met. The objective of this paper is to continue to develop the overall strategic plan for Civista Mecial Center as they plan to implement a cardiac rehabilitation program. The projected budget will be discuseed along with financial assumptions and capital expenditure planning. The budget will be summarized and the projected budget for phases I and II will be included. Focus ofRead MoreHuman Resource Development : Strategic Growth Of The Overall Company Essay1426 Words   |  6 PagesStrategic planning helps a company to predict and manage their future needs based on their trends in business while human resource planning helps a business implement their recruiting methods based on the needs of a department in the business and the needs of the consumers. Each of these things go hand in hand with one another and they help make the overall company more successful and reliable in the eye of not only its employees but the people who choose to buy or use them in any way. This paperRead MoreOrganizational Strategy For A Successful Business1408 Words   |  6 PagesA successful business is made up of various parts so it is imperative that managers develop the right mix of objectives and personnel if they want to have a fighting chance to survive in today’s global economy. 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While this role is incredibly exciting and will offer much in terms of reward there will be a great deal of work for the HR Manager to tackle to ensure that the corporate objectives are fulfilledRead MoreHr Planning : A Important Part Of Strategic Hr Management1164 Words   |  5 Pages HR planning is a vital part of strategic HR management. It joins HR management specifically to the organizations strategic plan of the organization. Most mid-to large organizations have a strategic plan that aids them in effectively meeting their missions. Organizations routinely finish financial related plans to guarantee they accomplish authoritative objectives keeping in mind workforce arrangements are not as common, they are generally as critical. Indeed, even a small organization with asRead MoreStaffing At Tanglewood. Contemporary Globalization Of Businesses And Growing Global Market Competition1127 Words   |  5 PagesStaffing at Tanglewood Contemporary globalization of businesses and growing global market competition has made effective human resource planning as one of the major strategies to forge ahead and remain proactive. It can be said that an organization s success lies to a great extent to the knowledge, skills, creativity, and dedication of its workforce. Every aspect of an organization needs human capital to drive its activities or operations to achieve individual strategic goals and objectives towardsRead MoreEssay about Planning in Todays World527 Words   |  3 Pagesimpact that planning has on todays corporate society. The need for planning is often obvious and after the fact. This article examines the importance of planning in an organization and the important role it plays in the success in todays corporate world. The organizing, staffing, leading and controlling functions stem from the planning function (Higgins, 1994). Todays managers are often ready to organize and staff only after goals, and plans to reach the goals, are in place. Often planning providesRead MoreCase Study : Mcdonald s Organization1153 Words   |  5 Pagesthan 68 Million Customers daily. (en.wikipedia.org/wiki/McDonald s, 2014) The key company design elements are efficiency, cost effectiveness and best practices. The design of the organization is based on the administration and the execution of the strategic plan. Thus the organization focuses on achieving its goals and strategies with respect to effectiveness and better efficiency. The company practically invented limited menu items, fresh foods, fast service networks and affordable prices, which areRead Moreplanning and controlling1118 Words   |  5 Pagesï » ¿PLANNING To establish and operate an effective organization, all managers perform several major functions or activities. These functions enable managers to create a positive work environment and   to provide the opportunities and incentives. The key   management functions include   -Planning -Organizing -Directing   -Controlling. Each of these functions are critical to the success of any manager and organizations. The primary function of the four is PLANNING. Planning is the process

Thursday, December 19, 2019

Applying Memory Strategies Essays - 949 Words

Applying Memory Strategies Memory is an internal journal or account of a previous circumstance or experience that a subject has met. A persons ability to keep and store mentally retained impressions and information also define memory. While information is not just naturally recorded in our brains, how one applies a theory or theories of memory and forgetting can help to improve how a subject remembers. Memory is essential to our everyday lives. People must recant who they are, they must recognize other people’s faces, and need to also remember how to maneuver and how to communicate. There are various models of the way memory is composed and how it works. Although there is much diversity between the models, they all consider memory as†¦show more content†¦The last stage in memory is retrieval. It is the process of recovering data from memory storage. Retrieval entails searching and locating the proper data and taking it out of storage, into conscious perception where it can be used. Retriev al is also where the majority of memory obstacles happen, obstacles such as memory loss and forgetting. There are multiple theories about why people forget. These theories consist of the decay theory, interference theory, consolidation failure theory, motivated forgetting theory, and the prospective forgetting theory. Perhaps one of the most dated theories of forgetting is the decay theory. This theory speculates that memories, if not used, will diminish with time and finally disappear altogether. The neural trace or physiological history of an experience possibly will decay within an extremely brief period or over massive time (Boyd, 2004). Scientists theorize that â€Å"neurons† diminish gradually as subjects age, although some older memories can be more powerful than most current memories. This is why the decay theory mostly embraces the short-term memory system. Actively reciting data is considered to be a critical factor in overcoming this short-lived declination. There are various means that can be retained to develop one’s memory capacity. The decay theory maintains that as time transcends with a memory trail that is not used, it becomes extremely complex for that form of activity to be reactivated, or toShow MoreRelatedThe Information Processing Model ( Woolfolk And Margetts 2016 ) Essay1601 Words   |  7 Pageswhy you found the learning situation difficult. What strategies, drawn from the readings and lecture, would you now put in place to improve such a situation if you faced it again in the future. This essay will briefly describe a past academic learning experience that I found difficult. I will use elements of the Information Processing Model (Woolfolk Margetts, 2016) to help explain why the difficulties occurred and to uncover different strategies that could be put in place if ever I was to face thisRead MoreThe Continuity Theory Of Aging894 Words   |  4 PagesIntroduction The belief that people cope with life better by applying familiar strategies based on their past experiences is the continuity theory of aging. This paper will review this theory, as well as discuss an interview done with an elderly individual, and how the interview relates to the continuity theory. Theory The continuity theory of aging is the belief that older adults will usually maintain the same relationships, behaviors, and activities as they did in their earlier years. Kali andRead MoreEssay on Applying Psychological Theories to Board Games755 Words   |  4 Pagesreinforcements in increasing certain behaviour or reducing or eliminates an unwanted behaviour. The two types of punishments are positive punishment and negative punishment according to B.F. Skinner (Skinner, 1974). Positive punishment is done by applying an aversive stimulus after the occurrence of behaviour. For an example, the player will be given the safety card, where the players are allowed to keep the safety card to void their punishment in the coming turns. By giving a safety card, it is aRead MoreThe retrieval of a memory can initiate processes in our brain that actively consolidate and1100 Words   |  5 PagesThe retrieval of a memory can initiate processes in our brain that actively consolidate and strengthen the memory trace, a process known as memory reconsolidation. Memories retrieved are thought to increase their stability once they undergo the process of consolidation. 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Also, the essayist explains other kinds of forgetting and discusses strategies that can improve memory consolidation and retrieval. Memory is an important asset. RememberingRead MoreTeaching And Learning Styles And Teaching Essay1610 Words   |  7 PagesTeaching Australia (2008) defined pedagogy as ‘the art and science of educating children, the strategies for using teacher professional knowledge, skills and abilities in order to foster good learning outcomes’ (p.3). Teaching and learning is a two-way process. Teachers choose the effective instruction modes to disseminate knowledge. Students adapt to different learning styles and use different learning strategies to help them process the information. When teachers receive evaluations and feedbacks fromRead MoreHow Memories From The Brain Is Capable Of Retrieving Information997 Words   |  4 Pagesinformation is put into memory. 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There is a definition of Metacognition giving by Illinois State University, Department of physics: ‘knowing what one knows and does not know a student’s ability to self-monitor levels of understanding and predict how well he will do on a particular task.’ Metacognition is the strategy thinking the thinking to figure a way to know ourselves much better in particular task. The practice of metacognitive

Tuesday, December 10, 2019

Heart Of Darkness (1021 words) Essay Example For Students

Heart Of Darkness (1021 words) Essay Heart of DarknessHeart of DarknessIn Joseph Conrads book Heart of Darknessthe Europeans are cut off from civilization, overtaken by greed, exploitation,and material interests from his own kind. Conrad develops themes of personalpower, individual responsibility, and social justice. His book has allthe trappings of the conventional adventure tale mystery, exotic setting,escape, suspense, unexpected attack. The book is a record of things seenand done by Conrad while in the Belgian Congo. Conrad uses Marlow, themain character in the book, as a narrator so he himself can enter the storyand tell it out of his own philosophical mind. Conrads voyages to theAtlantic and Pacific, and the coasts of Seas of the East brought contrastsof novelty and exotic discovery. By the time Conrad took his harrowingjourney into the Congo in 1890, reality had become unconditional. The Africanventure figured as his descent into hell. He returned ravaged by the illnessand mental disruption which undermined his health for the remaining yearsof his life. Marlows journey into the Congo, like Conrads journey, wasalso meaningful. Marlow experienced the violent threat of nature, the insensibilityof reality, and the moral darkness. We have noticed that important motivesin Heart of Darkness connect the white men with the Africans. Conrad knewthat the white men who come to Africa professing to bring progress andlight to darkest Africa have themselves been deprived of the sanctionsof their European social orders; they also have been alienated from theold tribal ways. Thrown upon their own inner spiritualresources they may be utterly damned by their greed, their sloth, and theirhypocrisy into moral insignificance, as were the pilgrims, or they maybe so corrupt by their absolute power over the Africans that some Marlowwill need to lay their memory among the dead Cats of Civilization.' (Conrad105.)The supposed purpose of the Europeans travelinginto Africa was to civilize the natives. Instead they colonized on thenatives land and corrupted the natives. Africans bound with thongs that contractedin the rain and cut to the bone, had their swollen hands beaten with riflebutts until they fell off. Chained slaves were forced to drink the whitemans defecation, hands and feet were chopped off for their rings, menwere lined up behind each other and shot with one cartridge , wounded prisonerswere eaten by maggots till they die and were then thrown to starving dogsor devoured by cannibal tribes. (Meyers 100.)Conrads Diary substantiated the accuracyof the conditions described in Heart of Darkness: the chain gangs, thegrove of death, the payment in brass rods, the cannibalism and the humanskulls on the fence posts. Conrad did not exaggerate or invent the horrorsthat provided the political and humanitarian basis for his attack on colonialism. The Europeans took the natives land away from them by force. They burnedtheir towns, stole their property, and enslaved them. George WashingtonWilliams stated in his diary,Mr. Stanley was supposed to have madetreaties with more than four hundred native Kings and Chiefs, by whichthey surrendered their rights to the soil. And yet many of these peopledeclare that they never made a treaty with Stanley, or any other whiteman; their lands have been taken away from them by force, and they sufferthe greatest wrongs at the hands of the Belgians. (Conrad 87.)Conrad saw intense greed in the Congo. The Europeans back home saw otherwise; they perceived that the tons ofivory and rubber being brought back home was a sign of orderly conductin the Congo. Conrads Heart of Darkness mentioned nothing about the tradingof rubber. Conrad and Marlow did not care for ivory; they cared about theexploration into the darkest Africa. A painting of a blindfolded womancarrying a lighted torch was discussed in the book. The background wasdark, and the effect of the torch light on her face was sinister. The oilpainting represents the blind and stupid ivory company, fraudulently lettingpeople believe that besides the ivory they were taking out of the jungle,they were, at the same time, bringing light and progress to the jungle. .u277ac42a63ed899ffcf7126e00145794 , .u277ac42a63ed899ffcf7126e00145794 .postImageUrl , .u277ac42a63ed899ffcf7126e00145794 .centered-text-area { min-height: 80px; position: relative; } .u277ac42a63ed899ffcf7126e00145794 , .u277ac42a63ed899ffcf7126e00145794:hover , .u277ac42a63ed899ffcf7126e00145794:visited , .u277ac42a63ed899ffcf7126e00145794:active { border:0!important; } .u277ac42a63ed899ffcf7126e00145794 .clearfix:after { content: ""; display: table; clear: both; } .u277ac42a63ed899ffcf7126e00145794 { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u277ac42a63ed899ffcf7126e00145794:active , .u277ac42a63ed899ffcf7126e00145794:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u277ac42a63ed899ffcf7126e00145794 .centered-text-area { width: 100%; position: relative ; } .u277ac42a63ed899ffcf7126e00145794 .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u277ac42a63ed899ffcf7126e00145794 .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u277ac42a63ed899ffcf7126e00145794 .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u277ac42a63ed899ffcf7126e00145794:hover .ctaButton { background-color: #34495E!important; } .u277ac42a63ed899ffcf7126e00145794 .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u277ac42a63ed899ffcf7126e00145794 .u277ac42a63ed899ffcf7126e00145794-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u277ac42a63ed899ffcf7126e00145794:after { content: ""; display: block; clear: both; } READ: Primus Securities Website Simulation EssayConrad mentioned in his diary that missions were set up to Christianizethe natives. He did not include the missions into his book because theland was forcibly taken away from the natives, thus bringing in a churchdoes not help if the natives have no will. Supplies brought in the countrywere left outdoors and abandoned, and a brick maker who made no bricks,lights up the fact that the Europeans do not care to help the natives progress. When Marlow reached the first station, he saw what used to be tools andsupplies, that were to help progress the land, laid in waste upon the ground. I came upon a boiler wallowing in thegrass, then found a path leading up the hill. It turned aside for the bouldersand also for an undersized railway truck lying there on its back with itswheels in the air. I came upon more pieces of decaying machinery, astack of rust rails. No change appeared on the face of the rock. Theywere building a railway. The cliff was not in the way of anything, butthis objectless blasting was all the work going on. (Conrad 19.)George Washington Williams wrote in hisdiary that three and a half years passed by, but not one mile of road bedor train tracks was made. Ones cruelty is ones power; and when one partswith ones cruelty, one parts with ones power, says William Congreve,author of The Way of the World. (Tripp 206.) The Europeans forcibly tookaway the natives land and then enslaved them. All the examples given arepart of one enormous idea of cruelty cruelty that the European whitemen believe because its victims are helpless. These are mystical revelation sof mans dark self. BibliographyConrad, Joseph. Heart of Darkness: Backgroundsand Criticisms. New Jersey: Prentice-Hall, 1960. Meyers, Jeffrey. Joseph Conrad. New York:Charles Scribners Sons, 1991. Conrad, Joseph. Heart of Darkness 3rd ed. Ed. Robert Kimbrough. New York: Norton Critical, 1988. Williams, George Washington. Heart of Darkness. By Joseph Conrad 3rded. Ed. Robert Kimbrough. New York: Norton Critical 1988. 87. Tripp, Rhoda Thomas. Thesaurus of Quotations. New York: Thomas Y. Crowell, 1970.

Tuesday, December 3, 2019

Wuthering Heights by Emily Bronte Essay Example

Wuthering Heights by Emily Bronte Essay Heathcliff does not find peace even after his extreme violent, hateful, and revengeful behavior in reaction to losing his beloved; however, his belief that he and his beloved would have a spiritual reunion in the life hereafter might be true.IntroductionHardly any novels have been analyzed as critically as â€Å"Wuthering Heights† by Emily Bronte. It has been scrutinized from all possible psychoanalytical viewpoints; at the same time it has been portrayed as a spiritual novel also. Generally speaking, it is an account of an anti-hero, named Heathcliff, and his endeavor to take away â€Å"Wuthering Heights† from its lawful heirs, Catherine and Hindley Earnshaw. Therefore, in this composite tale of extreme romance, Heathcliff is represented as a cuckoo is successful in disinherit the lawful inheritor to â€Å"Wuthering Heights†. Heathcliff’s feeling of revenge is the motivating force behind the plan he has made, nonetheless he deceives irregular indications of love for Haretonwho is a young chap whom he has destroyed.AnalysisThe word â€Å"Wuthering† is an idiom used to describe the severity of the climate of Yorkshire, with its full of atmosphere uproar.† (Bronte, 167) The name of the story not only suggests the cottage and its residents but also refers to the impact that Heathcliff’s passion for Catherine has on him and individuals who are near to him. As we move on in the story, we notice that his character becomes consecutively distorted and thus he loses his beloved Catherine. By the time Heathcliff comes back from a cast out forced by him in order to get educated and wealthy the reunion with Catherine slashes his body and spirit even more, and brings destruction to everyone who is around him. His eventual revenge was to make Hareton, who was the son of Hindley, undergo the same torture like he did. â€Å"Wuthering,† â€Å"tumult,† and â€Å"stunted growth† relate likewise to nature and hum ans in this story. However no detestation and hatred as extreme as Heathcliff’s can maintain itself; it burns extremely violently. (Bronte, 169) Once he has taken his revenge as planned, Heathcliff accomplishes his greatest wish which is to unite with his much-loved Catherine. However, this re-union can only take place in the life after death in the spiritual world.â€Å"Wuthering Heights† is a complex discovery of what happens when the conventional arrangement of a society is thrown out of equilibrium. As far as the Linton and Earnshaw families are concerned, it is the emergence of Heathcliff, who is the black, strange orphan who puts a series of incidents into action which devastates or threatens to destroy the existence of a lot of characters in the story. (Miles, 121) Even though it is in no way evidently expressed, there are a few reasons to believe that Heathcliff may possibly be the unlawful child of Mr. Earnshaw, who actually brought him into his own house and claimed to have found the child in Liverpool. Heathcliff posed a great danger to the Earnshaw family since he was very dark and thus was different, aggressive and perhaps a step-sibling to the Earnshaw’s off springs, Catherine and Hindley. This complexity adds up to a more upsetting aspect to the physical, spiritual, and emotional appeal and desire that builds among Catherine and Heathcliff. Other than the likelihood of breaching the incest taboo is the issue of social category: for the reason that he had a different origin, Heathcliff could by no means fit into the life of the Earnshaw/Linton family unit. However it is on top of all the love and passion that existed between Catherine and Heathcliff that resulted in the destruction of the two families. (Everitt, 59) It is because of the Heathcliff’s misinterpretation of the eavesdropping during the dialogue between Catherine and her nurse, Nelly Dean that makes him go away for exile and ultimately provides him the fina ncial way to influence his vengeance in opposition to the Earnshaws and the Lintons.Whilst Heathcliff comes back to Wuthering Heights after several years’ disappearance, he discovers Catherine and Edgar married to each other. Heathcliff’s rage destroys everything he lays his hands on, from the overlooked child of Hindley and Frances Earnshaw, the aggressive Hareton, to Edgar Linton’s fragile sister, Isabella. Heathcliff’s foremost evident act of vengeance against Catherine and Edgar was to convince and get married to Isabella. From moment onwards till the time he died several years later, Heathcliff’s rage at losing Catherine destroyed each and every person with whom he came into contact with, which included his wife Isabella, his very own son, Catherine’s daughter, and her cousin.Although both he and Catherine had gotten married, Heathcliff did not let her live in peace. Not satisfied merely to torment his own wife, Isabella, Heathcliff sho wed violence to Catherine vocally, and his violent behavior caused her to fall sick and pass away shortly, whilst giving delivery to little Cathy. Heathcliff in no way recovered from the loss of Catherine, which remained the cause for his cruel behavior of every person whom he acquaintanced with her. His resentment furthermore directly caused his very own death. (Kavanaugh, 212) Nevertheless, for his violence, hatred, and spite, Heathcliff did not find peace of mind or liberation from pain and misery. He merely succeeded in financially ruining Hindley; take into custody Edgar Linton’s wealth; and producing in youthful Hareton an untaught, aggressive animal.When Heathcliff is close to dying, Bronte once again makes use of the weather to reflect a personality’s inner tumult. Heathcliff died unaccompanied whilst a storm raged in the region of the Heights. He was afterwards found, a window opened, the insinuation being that Catherine at last came to state that he was all h ers’ now. Whilst this sight was the climax scene of the novel, it did not represent the decree of Wuthering Heights, as Bronte gave a conclusion that offered hope in the coming together of Cathy and Hareton Earnshaw. Cathy tamed Hareton and taugh him to understand writing, and she in addition learned to love and value him. (Kavanaugh, 213) The union of Cathy and Hareton Earnshaw represented a altered version of the love of Catherine and Heathcliff. Catherine herself was unable to have Heathcliff in his lifetime; however her daughter Cathy could hope to put together a fulfilling life with Hareton. Even though Heathcliff and Catherine’s love was not able survive in this lifetime, Bronte implied that the two lovers would at last be together in the life hereafter.An important aspect of the novel â€Å"Wuthering Heights† was basically the examination of the meaning of romance. By differentiating the fervent, love between Catherine and Heathcliff with the social set u p of marriage, the author argues in the support of individual choice. Catherine and Heathcliff both claimed that they knew each other like they knew themselves and that they are an essential part of one another. They believed that if one died, the other’s life will diminish greatly. (Davies, 19) This union, nevertheless, was destined to fail till the time they live due to the social restrictions. Heathcliff’s anonymous origin, his poverty, and his being uneducated made him an incompatible partner for a woman, regardless of how open-minded her notions about independence. Bronte implied the likelihood of meeting after death when the people believed they saw the spirits of Heathcliff and Catherine together, however this idea is clearly disagreed by Lockwood’s final declaration in the story, which the dead sleep silently.The intense effect of Romantic poetry on Bronte’s fictional mind is apparent in her depiction of Heathcliff as an anti-hero. This depiction added to the unfeasibility of any joyful coming together of Catherine and Heathcliff till the time they lived. Heathcliff loomed bigger than life, subjected to extreme violence of sentiments; open to to neither learning nor development. Heathcliff craved for love and considered vengeance as the only means of justice when he is abandoned by other people. Catherine, who was self-occupied and experienced disturbing fits, had less intelligence for self-defense to identify Heathcliff’s mistakes, including his lack of morality. Deciding to get married to Edgar Linton was basically opting for spiritual destruction and disconnection from her other nature, because she saw no other way to reunite her emotional requirement for completeness with the physical support and mental strength that she required. (Davies, 25) She was not capable of earning a living and was reliant on her brother who was wasting the family wealth; she is compelled to agree to the social benefits and lavishness tha t Edgar offered.Nevertheless traditional type of romance offers no obvious guide to a good marriage moreover; together Edgar and his sister, Isabella, experience a tough time by believing in conventional ideas of love. Edgar did not know Catherine completely, and his effort to take charge of her, forced her very own rebellious self-damage. Isabella, enthralled by the heroic persona with which Heathcliff is so splendidly gifted, believed that she actually loved him and became a keen prey in his plot of revenge. The ironic statement in relation to the nature and worth of love and a question regarding whether any love can surpass social and natural obstacles still remains unquestioned.ConclusionIn Heathcliff’s lifetime, life was totally hell; it could never be a heaven, however as the next-generation of Earnshaw and Linton offspring raised, free of Heathcliff’s shameful influence, Emily Bronte implies, a spiritual reincarnation is promising. Wishful thinking is reflected by the end of the story.