The main cultural assumption in this research paper is about, the French corporate culture once being Latin-like and the Dutch one having been German-like, both the corporate culture of France and the Netherlands firms are converging towards the Anglo-Saxon model. In order to confirm or not the preceding hypothesis, we choose in this research paper, to follow a two-fold case study approach, resulting in a thorough 2000-2003 dynamic examination of the financing and capital structures of leading competing firms in two key-sectors; that is to say telecommunications companies and oil companies. The three case studies chosen, basically raise three key issues when it comes to corporate culture: restructuring in a deregulating environment as far as the telecommunications companies are concerned; corporate governance and stock performance in a bullish barrel market for the oil companies.
[...] Firstly, studying the evolution of the financing structures of the main companies in two key-sectors in both France and The Netherlands has made me realise that, under special conditions (financial distress and favourable economic conditions), there are many different ways of playing with the capital structure in order to either finance new projects or restructure a company. However, I have noted lots of similarities in the approaches of the oil companies, unlike the telecommunications firms. This must be due to the fact that the oil market itself is truly global, and again unlike the telecommunications market which needs local infrastructure and branding. [...]
[...] Had markets and tax structures been perfect, the weighted average cost of capital wouldn't be correlated from the financing structure of a given company (hence the statement that there doesn't exist any optimal financing structure). But markets are not perfect tools, that's what makes them charming and this research paper's topic worth considering. The only figure that wasn't derived from the financial statements in this paper, alongside the risk-premium and T-bills rate, being the equity Beta of a company, here is a way to find the weighted average cost of capital from the Beta of a company: First of all, calculate the unlevered or unleveraged Beta of the company: Equity Beta / [(1-corporate tax rate)(Debt/Equity ratio)]); Then and finally, this is the way one may obtain your weighted average cost of capital: risk-free rate + unlevered Beta * market risk premium. [...]
[...] France Telecom' s debt ratios between structurally lower than those of KPN, the explanation could be that, through its activities in Argentina, Poland, Germany, not to mention several other countries, France Telecom is despite its name more international than a KPN focused on the Benelux and Germany. Again, academics would cheer our results: the more international the company, the lower the debt ratio (Chen, Cheng, He & Kim, 1997). Thirdly, and this is our last point, the value of debt is relatively insensitive to firm performance (Myers & Majluf quoted in Harris & Raviv, 1991). [...]
[...] Winner: KPN Unleveraged Betas Unleveraged Beta in 2003 KPN France Telecom 1yr 2yrs 5yrs Unleveraged Betas 0,6 Unlevered Betas 1yr, 2yrs, 5yrs 3 Royal Dutch Shell Total Weighted Average Cost of Capital Weighted Average Cost of Capital in 2003 KPN France Telecom 1yr 2yrs 5yrs Weighted Average Cost of Capital WACC 1yr, 2yrs, 5yrs 3 KPN France Telecom A short analysis: Although both expected returns from investors are strangely enough low, KPN seems to do consistently better in terms of risks hedging. [...]
[...] This research paper is three-fold: after firstly clearly and briefly defining some keyconcepts necessary to pursue in our quest for comparing the financing and capital structures of the studied companies, parts two and three are examinations of the two case studies. Hoping that you'll enjoy reading this research paper till its conclusion that may either confirm or refute our initial assumption, we wish you a pleasant and criticizing trip into the strategies and financial statements of four companies and two sectors that do mark the European industrial landscape. [...]
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