This article gives us the opinion that high levels of cash and account receivable can actually produce higher than average return on assets (ROA).

In this case, the author assumed that the most successful businesses employ assets in a mix conductive to that prosperity. Following this principle, the author gives us four tables to explain his opinion.

In the table, the firms were divided into eight equal-sized groups based on ROA to provide a range of averages from very high to very low, and the assets were divided into five categories: cash, trade receivable, inventory, other current assets, and gross plant, property and equipment (PPE). Following the four tables, some conclusions are given. The industry factor was found to have a significant effect on the ROA, the asset composition of the highest ROA group had the highest percentage of cash within each industry. CASH IS KING, is the main point of this article-the largest percent of total assets of the firms tends to be cash, that is what we learned about the asset composition of the most successful firms. Cash composition starts high among the least successful firms, decrease, and finally reaches its apex among the most successful firms.

The major surprise of this article is the high cash holdings, from my point of view, the cash is a non-productive asset, and it would seem that successful firms would not want to tie it up. But the research shows that the top firms in all industries have the most cash. This really makes me feel confused, and also interested. Maybe, if I have time, I will continue to do more research about this. But so far I do not think so, cause our program is so intensive that I have no time to do it. A little disappointed!

This research has revealed that successful firms have a high relative concentration of cash assets. Actual holdings for the most successful firms range on average from 14.9 % in services to 82.2 % in professional service. In three aspacts: construction, financial services, and professional services—cash holdings are the greatest of all assets for the successful entities. In natural resources cash represents the second greatest holding, while in manufacturing, retail/wholesale, and services cash holdings rank third. The findings should provide some guidance to management as to where their companies stand in relationship to other firms in the same industry and what adjustments to their asset mix might improve the firm´s return on assets.

From the aspect of research methodology to analyze this article, it only items the figures and tables of the research result. Based on the result, the author gives the conclusion, which is simply the phenomenon where table shows, instead of giving the more and detailed reason.
 
 

The purpose of this article is to examine how the capital market responds when a firm announces that it plans to imple- ment an enterprise resource planning (ERP) system, analyze the costs and benefits associated with ERP implementations, and develops study hypotheses. Sequentially it details the research method and presents the findings which indicate an overall positive reaction to initial ERP announcements. Further analyses suggest that the reaction is most positive for small/healthy firms. The market response to larger ERP vendors, as reflected by Peoplesoft and SAP, is significantly more positive than to smaller ERP vendors.

The market reacted positively to ERP implementation announcements. Further analysis indicated that the market reacted differentially depending in the size and health of the announcing firm, as a significant interaction effect was indicated. Specifically, the market reacted most positively to announcements by small/healthy firms and negatively to announcements by small/unhealthy firms. The reactions to announcements by large/healthy and large/unhealthy firms were positive and the mean SCARs fell between the two small-firm extremes. Additionally, size of the ERP vendor impacted the market reaction to ERP announcements. The reaction to announcements involving large ERP vendor impacted the market reaction to ERP announcements. The reaction to announcements involving large ERP vendors, as reflected by Peoplesoft and sap, was significantly more positive than the reaction to small vendors (all other ERP vendors in the sample).
The interaction between firm size and health is revealing from a theoretical perspective. Study findings support small-firm expectations, and indicate that returns related to large-firm announcements fall between small/healthy and small/unhealthy returns. However, we recognize that with cross-sectional studies of this nature, the precise reasons behind the market reactions based on firm size and health can not be known with certainty.

The provision of ERP system applications through the ASP market offers a means by which relatively smaller companies, even those whose health is somewhat poor, can leverage on the potentially huge efficiency and effectiveness gains inherent with ERP. Certainly, it would be of interest to see how the results reported in this paper change as the emphasis moves from ERP vendor brand identification to ASP brand identification.

While this study offers an indication that, on average, the market ascribes positive value to ERP implementations, additional research remains to be done in this area.
 
 

Introduction

The issue of managerial behavior, agency costs and ownership structure is currently gaining vast academic and public interest in the economical sciences. Much attention is paid to firm management and how to reduce the agency cost through different theories.

In this paper, Theory Of The Firm: Managerial Behaviour, Agency Costs And Ownership Structure, Michael C. Jensen and William H. Meckling argued for how to develop a theory of ownership structure for the firm. The purpose of the paper argument was to highlight a theory through different theories (property rights, agency, and finance), the theory helps to explain how a manager in a firm look upon different activities the value, the sale, the debt, the stock, accounting reports, and industries.

In this preview of Michael C. Jensen's and William H. Meckling's approach, I will present their definition of theory of the firms and how they thought these bout the agency costs would be engaged in enhancing the process of management in what we may call managerial control. Then I will argue that an other analysis based on " justice to manager" will be an adequate model for the owner-manager living under the mercy of outside share holders.

The theory of the firm from the economics literature it is not theory, but it is a theory of the market and the firms are important actors. And the property rights it is a relation between the owners and managers of the firm. The definition of agency relationship as a contract between different parties to perform some services. The agency cost is the sum of the monitoring expenditures by the principal, the bonding expenditures by the agent, and the residual loss. Since the agency costs could arise in some situations, the paper discussed the problem of the analysis of agency costs, generated by the owners and top management.

Since the theory of agency cost has positive aspects, and the objective of the firm and its responsibility, the theory developed in stages;

Stages (2 and 4) provide analyses of the agency costs,
Stage (3) the role of limited liability,
Stage (5) the synthesis of the basic concepts in sections (2 and 4),
Stage (6) analysis discussion,
Finally stage (7) summary and conclusions.

The theory analysed by comparing the manager behavior when s/he owns and sells claims, and the conflict between the owner-manager and outside share holders, two assumptions for the analysis, first set (permanent assumptions), and second set (temporary assumptions). In the analysis they used the market value of the firm (which is a function of the level of the investment) measurement and the market value of the manager's expenditures on non-pecuniary benefits (represented as a function of the level of the investment when the manager's expenditures on non-pecuniary benefits are zero) through the indifference curves.

The paper discussed the determination of the optimal scale of the firm. The expansion path to measurement to equilibrium level of the owner's non- pecuniary benefits and wealth at each possible level of investment. The manager stops increasing the size of the firm when the gross increment in value is just offset by the incremental ''loss'' involved in the consumption of additional frige benefits due to his declining fractional interest in the firm. The owner- manager behavior can be controlled through monitoring and other control activities (auditing, formal control systems, and budget restrictions) to reduce the agency cost. If the out- side equity holders make the monitoring expenditures to reduce the owner- manager's consumption, s/he will do a contract with out-side equity holders, which gives them the rights to restrict his/her consumption of non- pecuniary items. With the monitoring contract with the manager, or using the bonding cost, the manager will do the nest to reduce the agency costs and to increase the value of the firm. From the analysis through Parito optimality and the agency cost, the agency cost could be positive as long as monitoring costs positive, the agency costs vary from firm to an other, depending on the managers inn decision making, and the cost of monitoring and bonding activities. The production competition in the market will constrain the behavior of the manager to idealised value maximisation.

In ownership structure of the firm the proprietorships or partnerships is the limited liability feature of equity claims in corporations.Limited liability is a condition to explain magnitude of reliance on equities. It is very unusual to see the firms which are financed totally debt. If the firm takes loan and gets loss then the probability of success is very little and in this the creditors bear the costs.Due to this the firms become bankrupt.

Bankruptcy means the firm can´t meet a current payment on a debt obligation. Some times reorgnization is possible and it would be accompanied by an adjustment of the claims of various parties and business. In corporate ownership structure crucial variables to be determined are not just the relative amounts of debt and equity but also the fraction of equity held by the manager. As long as the capital markets are efficient the prices of assets such as debt and out side equity will reflect unbiased estimates of the monitoring costs and also the selling owner will bear these agency costs.

As the amount of out side equity increases, the owner´s fractional claim on the firm falls. It means that when some sourses fom out side of the firm are financing the organization then the owner manager is losing some benefits. But ofcourse if the owner-manager resorts to any out side funding then he has to invest all of his wealth in the firm but this is a risky task and if he allows out side financing the he can diversify his assets and can avoid the risk factor.To find the optimal amount of out side financing, this condition is used ? V - ? I = 0.

The point of intersection of marginal agency cost and demand for out side financing is called the optimal amount of out side financing.

Comments:

I agree with Michael C. Jensen and William H. Meckling that Theory Of The Firm, as they describes it in their paper, is an important factor towards managerial behavior, agency costs decline and that it will contribute to policies of agency costs decline in many firms in the world. I, however, consider this factor as of only marginally important for the difficult conditions the REALLY the managers of the firms are facing. Injustice in all aspects leaves those managers and in their competitions traps that all the theories we academicians pose are far away from THEIR CONCERN. It will be my dream to see, or be able to do, An Injustice Analysis of management.

We have discussed out side equity and there is one thing that this out side equity is non voting but if it does have the right then the manager can have effect on the long run welfare of reducing his fractional ownership below the point where he loses the effective control of the corporation. If the manager contractually hold a fraction of the total debt equal to his fractional ownership of the total equity he would have no incentive whatsoever to reallocate wealth from the debt holders to the stock holders. Further more the security analysis activities reduce the agency costs associated with separation of ownership and control they are indeed socially productive.