Managerial Finance Case

Topics: Net present value, Decision making, Internal rate of return Pages: 6 (1746 words) Published: March 9, 2013

1.What are the industry differences in US Corporate Governance and Japanese Corporate Governance? JAPANIES CORPORATE GOVERNANCEUS CORPORATE GOVERNANCE
Stakeholders of organiztions:
Japanies system believs in the wealth maximization of stake holders, including managers, labour, suppliers, crediters etcAmerican syatem always emphasized on striving for wealth maximization of the share holders and calculated it in terms of CF, capital gains etc Positive NPV Concept:

Japanies Governance was of the opinion that the motto is not solely wealth maximization of share holder so the capital budgeting criteria was differentUS governace always check feasibility of the projects in terms of positive NPV Principle-Agent Relationship

There was no concept of principal agent relationship in Japan, as Japanies believe that even the managers are the principal and can likely to have their own goal settingUnlike Japan, Uscompanies firmly believe in Principal agent relationship and consider managers to be agents who have to work on the goal setting of share holders Wealth-Maximization:

Japan believe in long term value maximizationUS believes in short term value maximization Status Of Employees:
Empolyees are important stakeholders for Japan The NPV concept of America shows that they believe share holders to be the only stakeholders.

2.Identify differences in US decision making process and Japanese decision making process? US decision making system:
US decision makers strongly believe in the investment of those projects which have positive cash flows. They analyze the investment decisions with the help of NPV and IRR. The decision making method has advantage that cash flows are discounted as a result the concept of time value of money is taken into consideration in order to determine the feasibility of the project. Japan decision making:

Japanese decision makers use the average accounting return method. It ignores the concept of time value of money. The average income is divided by the average investment to analyze the returns. The cash flows are not considered while making the decision. More over depreciation is not added at the end in order to refund the investment which was deducted while calculating the book value. Further more, the decision makers of Japan not only take the result of the internal financial analysis, but also take the opinions of the directors and the stakeholders. The decisions could be tough as it was based on the personal preferences. Japanese decision makers not only rely on the numbers, figures and ratios and numbers but also take into consideration the relevant non-financial factors. 3.What are the impacts of globalization on Japanese decision making / Corporate Governance? The Industrial Bank of Japan’s (IBJ) top management was foreseeing the fact that the future of Japan was towards service industries basedon technology, software etc so it put its effort to internationalize these field around the globe. It under-took joint ventures and export efforts to expand these industries globally. IBJ was a potential in the OL as they were also foreseeing them as market leaders. Though it was a risky investment as Walt Disney was not at all taking any type of risk so all the risk was to be borne by the Japanies banks. However, a group of bank agreed to lend $0.55 billion to OL in order to bring a foreign investment project in Japan. However the critical point was the corporate governace and decision making. Japan corporate governance did not followed the average accounting return method which did not take into account the concept of discounting future cash flow,where as US corporate governance followed the concept of NPV. IBJ designed a new method which was ACFR (Average Cash Flow Return) which was accepted by OL. The result was: •...
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