Corporate Governance Impact On Capital Investment

Corporate Governance Impact On Capital Investment Introduction Overview Through various studies over the years, different scholars and financial analysts have been able to establish a relationship of cash flow on firms investment spending. It was significantly proven by (Modigliani Miller, 1958) that a firms financial status is irrelevant for real investment decisions in a world of perfect and complete capital markets, after controlling for the cost of capital. In case of managerial discretion, based on (Jensen, 1986) free cash flow theory, firms increase investment (including projects with negative present value) based on the availability of cash flows with incentive of increasing firms value beyond level of optimal investment. Moreover, an agency costs also appreciate the borrower net worth by charging a premium on the external financing. The discussion above explains that the firms investment decisions are dependent on the availability of internal funds, as cost advantage over external fund is evident. While choosing an appropriate capital structure, there are certain trade-offs which affects the decision. These trade-offs include tax advantage through acquiring debt against the bankruptcy cost which advocates the use of equity. Keeping this in view, various different models have been supported to explain this corporate capital structure behavior. Pecking Order Theory, initially mitigated by (Donaldson, 1961) describes the financing practice as prioritizing the means of financing, which is necessary for the management to counter against asymmetric information. Either they should generate the funds internally or acquire funds externally through debt rather than equity. Implications to the pecking order theory involves the positive impact of leveraging on the market price, which means, financing through debt sends a positive signal into the market about the firms future prospects. Furthermore, intermediaries also undermine the role of management as the financial intermediaries such as investment banks function as the insider to the firm. Consequently, keeping an eye on the firms operations and influencing the firms capital financing decision. However, Pecking order theory of (Myers, 1984) argues that the firms operating in imperfect or incomplete capital markets where the cost of external capital exceeds that of internal funds, the financial structure may be appropriate to the investment decisions of companies facing uncertain prospects. Gauging the level of corporate investment in any firm is based on the corporate governance; market position of a firms asset against its book value can be termed as Tobins q ratio. Identified by (Chung Pruitt, 1994), Tobins q as proportion of firms market value to replacement cost of its assets. Tobins q can be considered an effective tool for determining financial performance as the data can be collected readily from a balance sheet. When calculating Tobins q ratio, the replacement cost can be determined approximately by the book value of firms plant and equipment. Approximate q can be replaced with the actual Tobins q to make the calculations unproblematic and data can be readily available without any discrepancies. Problem Statement To study the impact of corporate governance on the capital investment decision through cash flow and Tobins q interaction in relation with Capital Investment HypothesEs H0: Firms cash flow having a significant impact on its capital investment will be linked with high Q values. (FCF Theory) HA: Firms being liquidity constrained due to least payout will have significant investment-cash flow sensitivity, and will be linked with high Q values in the market. (PO Theory) Outline of the study The report contains the contemplation of research data that will study the phenomenon of cash flows and investment discussed earlier in this paragraph. The study categorizes firms according to characteristics (such as dividend payout, size) which will help measure the level of constraints faced by firms. The study will help readers to understand the complexities of Pecking order theory and Free Cash Flows concept with regard to asymmetric information available and corporate governance which influences decision of the firms. To measure the effect that cash flow-financed (internally sourced) capital spending and Q has on firms investment, Ordinary Least Square Regression model will be used to estimate the function. To compute the influence on the Investment, instruments used are: (1) Cash Flow, (2) Approximate q, and (3) an interaction of both variables are created. Through studying the parameter estimates of interaction variable, positive influence on investment will support the Pecking Order hypothesis and negative influence will govern the Free Cash Flow hypothesis. The equation hypothesized in the next part is linear. Definitions Pecking Order Theory: (Myers, 1984): A firm is said to follow a pecking order if it prefers internal to external financing and debt to equity if external financing is used. Free Cash Flow Theory According to (Jensen, 1986), free cash flow theory, high cash flow and low debt create agency costs associated with conflicts between manager and share holder over the payout of this free cash, which is the cash left after the firm has invested in all available positive net present value projects. Capital Structure A careful and systematic analysis of how claims against a corporations assets can or should be determined, assessed, and accounted for. (Riahi-Belkaoui, 1999) Capital Investment Decision Capital Investment decisions are those decisions that involve current outlay in return for a stream of benefit in future years. (Drury, 2006) Tobins q Tobins q is a measure of investors expectations concerning a firms future profit potential. It is defined as the ratio of the market value of a firm to the replacement cost of its assets. (Strecker, 2009) Literature Review Vogt (Vogt, 1994) explained the capital spending behavior of companies with respect to change in dividend cash paid, cash flows, sales, and market value of assets. The regression equation models the variables to proportion of fixed assets, and distributes the firms data in segments of Dividend Payout Groups and Asset Groups. Primarily, Dividend Cash has a strong negative impact on capital spending; it explains that in order to finance additional fixed investment firm needs to sock cash by reducing their dividend. Cash flow, Sales, and Q Ratio having a positive coefficient demonstrates that with an increase in future cash flows, the firm will improve its capital spending. A relationship has been developed between the firms investment decision and the firms financial status by Cleary (Cleary, 1999), financial status has been studied with respect to the liquidity constraints. The data is classified into groups through a discriminant analysis on basis of dividend payout policy. Groups taken into study have made possible to identify firms which are more financially constrained more likely to be investment-cash flow sensitive, furthermore, availability of internal sources of funds have a greater impact on firms with high credit worthiness, and vice versa. It has been proposed that the various ownership structures make managerial decision based on the interaction between investment and the firms liquidity constraints. The study conducted by Dedoussis Papadaki (Dedoussis Papadaki, 2010) mentioned that the management can be held separate from its ownership, even on basis of the nationality of the company. On the other hand, it also explained that the relative shareholding of CEO and the controlling shareholders can also be the basis of separation. The sample used in the study was separated and grouped on basis of dividend payout, asset size of the firm, age of the firm, source of control, and kind of ownership. On the given sampling criterion; greater asset size firms, older firms, lower Q (high investment opportunity), and high dividend payout firms showed higher cash flow sensitivity towards investment. Findings support that the Low Q, small, and new firms under the generalized model are facing asymmetric information problems. Indeed these firms are expected a priori to face financing problems that affect the cost of their external financing. On the other hand, low Q, old and low dividend firms are more likely to face managerial discretion problems that result to over-investment. The impact of Tobins Q is mainly used to determine the investment opportunity of the firm. In this article, marginal Tobins Q has been taken to evaluate the firms investment and Research Development expenditures. The asymmetric information (AI) hypothesis proposed that firms provided with a profitable investment-project may be not able to source it through internal cash flows and for the reason that the cost of external funds is too high due to the capital markets ignorance of the firms investment opportunities. On the other hand, agency or managerial discretion (MD) hypothesis constructs the investment-cash flow relationship on the assumption that managers are well qualified in context with proficiency they obtain from managing a huge and fast paced firm and thus exceeding the wealth shareholders beyond their expectations. (Gugler, Mueller, Yurtoglu, 2004) Taking in viewpoint the impact of capital structure on the capital investment decision, firms investment demands is the more susceptible towards cost-of-capital or tax-based capital incentive. Whereas, capital structure seems irrelevant as against internal sources of funds can be effectively substituted with sources of funds generated externally. The size of the investment project can be a deterministic factor towards it. Fazzari, Hubbard, Peterson, Blinder, Poterba (Fazzari, Hubbard, Peterson, Blinder, Poterba, 1988) explicates that cash flow/investment relationship is more sensitive when taken in reference with firms dividend behavior. Comparison based on firms having more or less liquidity constraints can be further improved when compared on a division based on the scale of the firms, i.e. young or small firms versus large ones. This way the researchers can address the problem of firms lacking the asymmetric information. Under the impression where capital investments decisions mainly pertains to the capital structure or choosing the appropriate source of investment, Schaller (Schaller, 1993) conducted three different empirical tests to determine that information asymmetries have a huge influence on the firms investment behavior. Differences among the informational base of investors and creditors was also considered a capital market imperfection. Ownership status and age of the firms has an impact on the cost of equity financing, mature firms pay comparatively less price for it than young firms. Same aspect goes for the firms with concentrated with comparison to dispersed ownership. Borrowing is considered a more rational source for investment-projects. Pledgeable assets generate greater borrowing capacity, which afterwards makes firms invest more in pledgeable assets. As suggested by Almeida Campello (Almeida Campello, 2007), such a phenomenon can be termed as a credit multiplier. In case of financially constrained firms, a multiplier relates to the sensitivity of firms investment-cash flow relationship that is reflected as the increase in the tangible assets of the firm. Therefore, it is proposed that with fewer tangible assets firms are more likely to be financially constrained. The sensitivity of investment-cash flow relationship is evidently influenced by the tangibility of a firm, as latter discussed. Managers while making capital investment decision considers externally-sourced funds costlier, therefore, overconfident managers over assessing the profitability of an investment-project invests more when having abundant internal funds to utilize. However, deciding not to source externally in case where they are short of internal funds to generate. There has been an evidence of significant relationship between the managerial discretion and investment-cash flow sensitivity. Equity concentrated firms are more likely to be influenced by overconfident managers, unless compensation tools can be used to reduce the effects of managerial overconfidence. (Malmendier Tate, 2005) Goyal Yamada (Goyal Yamada, 2004) have explained the impact of asset pricing in the stock market against investment-cash flow sensitivity. Overvalued stock prices triggers an increased in investment spending and are cut back when stock are being undervalued, consequently, inflated prices collateral assets attract higher level of external financing. Inflationary pressures primarily determined by the economic monetary policy impacts on the variation of cost on external financing, though it reflects highly on cost of external financing, marginally impacts less on the investment-cash flow sensitivity. It has been observable that less financially constrained firms have significantly higher investment-cash flow sensitivity. Characterizations of firms based on financial constraint can sometimes create confusion. Firms having unusually high cash holdings can either be characterized as unconstrained based on the opportunities it has to invest or constrained based on the assumption that it needs to have a precautionary savings to invest in future investment projects. Therefore, financial constraints cannot be used as an influential determinant for investment-cash flow sensitivity. (Kaplan Zingales, 1997) Hu Schiantrlli (Hu Schiantarelli, 1998) put into picture the effect of general economic factors and various firms characteristics on the value of the firms net worth. Mainly financial status is the most important determinant for the level of asymmetric information problem that managers face. A strong balance sheet position can reflect good sign of firms performance which enhances the market value of the firms asset to its stake holders, mainly investors and creditors. Q models assumption also assists in determining the sensitivity of the investment-cash flow relationship, where the indicators determine the investment opportunity and the sources of funds to choose from. Understanding the market influence in proxy of q can also give a clear picture to the movements in the firms investment over a period. Net worth of firms helps manager determine if the sourcing of funds externally is a viable option in contrast to the investment opportunity which underlies. (Hubbard, 1998) Research conducted on the investment-cash flow sensitivity addresses many aspects of the firms financial strength. Further study by Calomiris Hubbard (Calomiris Hubbard, 1995) shows that when firms tax taken under investigation also reflected a significant influence on the volume of spending on investment-projects. They explored the impact of surtax margin, as a tax experiment, on the cost of internal and external funds. Surtax when levied on undistributed profits, obligate the firms to incur certain cost on the internal funds. This effects the managers decision to invest and is also reflected on the investment-cash flow sensitivity against the surtax margin. As a result to evade burden of higher cost on internal funds, firms with high surtax-margin exhibits elevated sensitivity in investment-cash flow relationship. Quan (Quan, 2002) discusses the Pecking Order theory with reference to the Modigliana-Miller proposition that works under the assumption of perfect market. Here it is stated that value of the firm is irrelevant and based on a few limitations the choice of financing can be determined via gauging the strength of the firm. These factors pertain to the imperfect market and influence the managers to make their capital investment decision. Once the assumptions are released the financing structure shows a clear picture. The association between Free Cash Flow theory and Agency theory has always been under the limelight when there is a question of retaining the undistributed profits. FCF Theory taken under consideration gives out an option to the management to hold on to excess cash sacrificing the shareholders opportunity cost. These excess funds can be generated to better internal operational efficiency or at managers discrepancy to source its investment-projects. (Wang, 2010) Research Methods The chapter explains the model used in the given research study. The study focuses on analyzing the influence of Cash Flows and Tobins q on Corporate Investment. The equation represented by a dependent variable as a ratio of capital spending to the beginning net fixed asset (I/K) predicted by independent variables: (1) ratio of cash flow to the beginning gross fixed asset (CF/K), and (2) beginning Tobins q (Q). Method of Data Collection Main source of collecting the required data is from secondary sources. It includes the Balance Sheet Analysis of Joint Stock Company listed in Karachi Stock Exchange provided by State Bank of Pakistan consisting of data of our relevant variables. The data was taken in annual terms to conduct this research. Sampling Technique The Convenience sampling or grab or opportunity sampling would be use in this research. Sample population selected because it is readily available and convenient. Sample Size The sample period taken under study covers 8-years period beginning at the start of 2000 and ending at the close of 2008. The data was taken from a sample of 70 (non-banking and non-financial) companies which are listed on Karachi Stock Exchange and included in KSE-100 index. Research Model Statistical technique Ordinary Least Square Regression technique is used to study the impact of variables included in the study. It helps studies the relationship between a dependent variable and several independent variable. It also assumes the relationship to be linear or straight line, where the values of predictors lies directly proportional to Criterion variable. SPSS Software is used to develop the regression model and evaluate the influence of predictors on dependent variable. Results Findings and interpretation of results Aggregate Sample: Table : Represents the model summary of regression estimates for the full sample of 69 firms The predictors, i.e. main effects of Cash Flow and Tobins q and an interaction variable of both combined, included in the model explains 78.5% of Investment (Table 1) shown mentioned as R Square. Least variation in Adjusted R Square suggests that the variable to observation ratio in the given model is sufficient. Casewise diagnostic was also conducted to eliminate the outliers in the data to improve the results. Table : Studies the F-statistics to test whether the model predicts the dependent variable significantly The F-statistics (Table 2) is significant and it determines the regression model with the given predictors can significantly predict the outcomes at a 0.05 significance level. Table : The parameter estimation for full sample of 69 firms with respect to dependent variable, t-statistics is used to test the null hypothesis ÃŽÂ ²1 = ÃŽÂ ²2 = ÃŽÂ ²3 = 0 The coefficient values of all predators included in the test are significant at a 0.05 significant level (Table 3), which shows that they have a strong influence on the investment of the firm. The standard coefficient shows that Cash Flows have a much greater impact on Investment than market value on the firm, which is exemplified through Tobins q. Dividend Payout groups: Table : Presents the sample statistics for 69 KSE listed (non-banking and non-financial) companies which are included in the KSE-100 index. The three rows distribute the statistics into High, Medium, and Low payout policies. Average dividend-to-income ratios of greater than 0.35, between 0.35 and 0.10, and less than 0.10 define High, Low, and Medium dividend-payout firms, respectively. While studying the dividend-payout groups (Table 4), the descriptive helps to identify characteristics to confirm whether the data being studied has the authenticity and the behavior pattern which commonly related to the groups assigned. The values of Investment, Cash Flow, and Tobins q associated with the groups are in complete correspondence with the hypothetical occurrence. Firms having a higher (lower) dividend payout have greater (lower) market value, and lower(higher) level of cash flows and investments. Table : Represents the model summary of regression estimates of 69 firms split by High, Medium, and Low dividend-payout policies. The model helps explains 81.9%, 66.7%, and 80% data in High, Medium, and Low dividend-payout firms (Table 5), shown in R Square. Least variation in Adjusted R Square suggests that the number of observations is sufficient with respect to variables in each group separately. Table : Studies the F-statistics to test the null hypothesis of ÃŽÂ ²1, H = ÃŽÂ ²1, M = ÃŽÂ ²1, L The F-statistics (Table 6) in each dividend payout group is significant and it determines that each regression model with the given predictors can significantly predict the outcomes at a 0.05 significance level. Table : Shows the parameter estimation for each payout groups with respect to dependent variable, t-statistics is used to test the null hypothesis ÃŽÂ ²1 = ÃŽÂ ²2 = ÃŽÂ ²3 = 0 The coefficient values of predators in High and Low dividend payout groups are all significant at a 0.05 significant level (Table 7), which shows that they have a strong influence on the investment of the firm. Except for Medium dividend payout group, which has insignificant coefficient values of Tobins q, showing no impact on the investment. The standard coefficient shows that Cash Flows have a much greater impact on Investment than market value on the firm, which is exemplified through Tobins q. Hypothesis Assessment Summary Hypothesis Independent Variables B t Sig. Comments Firms cash flow having a significant impact on its capital investment will be linked with high Q values. (FCF Theory) Cash Flow ÃÆ'— Q H0: ÃŽÂ ²3 ÃŽÂ ²3,H = .135 5.295 .000 Rejected ÃŽÂ ² 3,M = .072 .991 .324 ÃŽÂ ² 3,L = .140 5.482 .000 Firms being liquidity constrained due to least payout will have significant investment-cash flow sensitivity, and will be linked with high Q values in the market. (PO Theory) Cash Flow ÃÆ'— Q HA: ÃŽÂ ²3 >0 ÃŽÂ ² 3,H = .135 5.295 .000 Accepted ÃŽÂ ² 3,M = .072 .991 .324 ÃŽÂ ² 3,L = .140 5.482 .000 Dependent Variable: Investment (I/K) Table : Summarizes the results and explains that the hypothesis accepted is directly in correspondence with the aggregate hypothesis. As illustrated (Table 8) capital spending of low payout firms is positively and strongly influenced by the interaction term, consistent with the PO hypothesis, the parameter estimate for the high payout firms are also positive but marginally significant. Conclusion, Discussions, Implications And Future Research Conclusion The results illustrated above demonstrates that the positive relationship between the degree of the Investment-Cash flow relationship and Q represented latter in the aggregate data (Table 3) is concentrated in low or no dividend paying firms. This finding is in further support with the PO hypothesis. Discussions The objective was to study and test the causes of universal relationship between Cash Flow and Investment Spending. Hence, two hypotheses were included in the research to study the source of this relationship: the free cash flow hypothesis (FCF) hypothesis, which works on the assumption that managers prefer investing its free cash flow excessively into investment projects that are not profitable, and the pecking order hypothesis (PO) purports that managers are prone to investment comparatively less than the opportunity provided due asymmetric information-induced liquidity constraint. As advocated in favor of Pecking Order Theory by (Fazzari, Hubbard, Peterson, Blinder, Poterba, 1988) and many others, for groups which consists of small firms with low-dividend payout to fund capital spending, exhibits heavy reliance on cash flow and cash changes. The relationship can be more significantly studied when the impact of larger q value is associated with this group. Evaluating the impact of corporate governance on investment-cash flow relation requires a critical judgment as to how do the firms cash flow and the existing market value influence the investment decision. Financially constraint firms may have a larger impact on liquidity associated matters and managers might take discretion in choosing the right sources to tap. Agency cost may be involved in making such a decision where managers may consider paying dividend as a higher opportunity cost as it reduces the firms free cash flow to exploit new profitable investment projects. Implications and Recommendations In the current market situation where external pressures existing can also be taken into proxy. When managers making a capital investment decision they need to take in view other non-financial aspects that also influences the decisions to a certain extent. Furthermore, financial intermediaries having a certain level of involvement and sharing information sensitive to the market can also be a major factor that might be giving a varying result against Investment. Investing in profitable-investment projects can bring in greater resources to the firm in future and it entails a huge decision burden upon the shoulders of the managers. Shareholders expecting to earn a greater return through investing in them can also be undermined when manager decided to have a low payout policy. Funds generated internally is a possibility where there is a healthy cash flow, but it is also preferable if this free cash is invested into marketable security for allocating the resources into a profitable venture for a time being to make it a positive impression. Future Research In future studies there may be more aspects of cash flow-investment relationship which can be studied for assessing the degree impact it has on this relationship, i.e. sales, debt performance, capital structure, firm size, etc. The research study may also be improved if the observation of firms are increased that will in turn reflect a more clear picture about the relationship in the current scenario. References Almeida, H., Campello, M. (2007). Financial Constraints, Asset Tangibility, and Corporate Investment. The Review of Financial Studies , 20 (5), 1429-1460. Calomiris, C. W., Hubbard, R. G. (1995). Internal Finance and Investment: Evidence from the Undistributed Profits Tax of 1936-37. The Journal of Business , 68 (4), 443-482. Chung, K. H., Pruitt, S. W. (1994). A Simple Approximation of Tobins Q. Financial Management , 23 (3). Cleary, S. (1999). The Relationship between Firm Investment and Financial Status. The Journal of Finance , 54 (2), 673-692. Dedoussis, E., Papadaki, A. (2010). Investment spending and corporate governanc: Evidance from the ASE listed firms. Managerial Finance , 36 (3), 201-224. Donaldson, G. (1961). Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Division of Research, Graduate School of Business Administration, Harvard University . Drury, C. (2006). Cost and management accounting: an introduction (6 ed.). Cengage Learning EMEA. Fazzari, S. M., Hubbard, R. G., Peterson, B. C., Blinder, A. S., Poterba, J. M. (1988). Financing Constraints and Corporate Investment. Brookings Papers on Economic Activity , 1988 (1), 141-206. Goyal, V. K., Yamada, T. (2004). Asset Price Shocks, Financial Constraints, and Investment: Evidence from Japan. The Journal of Business , 77 (1), 175-199. Gugler, K., Mueller, D. C., Yurtoglu, B. B. (2004). Marginal q, Tobins q, Cash Flow, and Investment. Southern Economic Journal , 70 (3), 512-531. Hu, X., Schiantarelli, F. (1998). Investment and Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data. The Review of Economics and Statistics , 80 (3), 466-479. Hubbard, R. G. (1998). Capital-Market Imperfections and Investment. Journal of Economic Literature , 36 (1), 193-225. Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review , 76, 323-9. Kaplan, S. N., Zingales, L. (1997). Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? The Quarterly Journal of Economics , 112 (1), 169-215. Malmendier, U., Tate, G. (2005). CEO Overconfidence and Corporate Investment. The Journal of Finance , 60 (6), 2661-2700. Modigliani, F., Miller, M. H. (1958). The cost of capital, corporation finance, and the theory of investment. American Economic Review , 48 (3), 261-97. Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance . Quan, V. D. (2002). A rational justification of the pecking order hypothesis to the choice of sources of financing. Management Research News , 25 (12), 74-90. Riahi-Belkaoui, A. (1999). Capital structure: determination, evaluation, and accounting. Quorum. Schaller, H. (1993). Asymmetric Information, Liquidity Constraints, and Canadian Investment. The Canadian Journal of Economics , 26 (3), 552-574. Strecker, N. (2009). Innovation Strategy and Firm Performance: An Empirical Study of Publicly Listed Firms. Gabler Verlag. Vogt, S. C. (1994). The Cash Flow/Investment Relationship: Evidence from U.S. Manufacturing Firms. Financial Management , 23 (2), 3-20. Wang, G. Y. (2010). The Impacts of Free Cash Flows and Agency Costs on Firm Performance. Journal of Service Science and Management , 3 (4), 408-418.

Oedipus :: essays research papers

In ancient Greece, the people believed that the gods ruled their lives and controlled their destiny. Their emphasis on fate was shown in their plays. This stands true to Oedipus, he could not c0ontrol his fate. Fate kept Oedipus alive through a murder attempt and to kill his father, and to marry his mother. When Oedipus was born his father was so afraid of the prophecy that he gave his son away to be killed. The will of the gods protected Oedipus and found two people to raise him. If the gods didn’t control the lives of these people, Oedipus would surely be dead. Fate kept him alive to fulfill his prophecy. Oedipus was put in a situation where he couldn’t protect himself, but was still able to overcome it. Oedipus is now older and leaves the people whom he thinks is his parents. While traveling he runs into a stranger. He gets into an argument with this stranger and kills him. The stranger turned out to be the king, and also his father. With the king away a sphinx shows up and causes mischief. Oedipus answers the riddle correctly and with it the sphinx leaves. Because of this Oedipus is given the throne. Fate has kept him alive and given him the chance to kill his father and overtake the thrown. Now that he is king, he meets the old queen and falls madly in love with her. He marries her and he has two children, who in all reality are actually his half sisters. Oedipus has no way of knowing that his wife is actually his mother. Just when it had seemed to Oedipus his life was becoming fulfilled, he runs into a blind prophet who explains why the city is having such problems. Slowly but surely Oedipus’ fate comes back to haunt him. It begins with the burning question of, why is the city is undergoing such terrible plagues? The whole town seems to be under a curse from the gods and Oedipus wants to know why.

Business Process Outsourcing in the Philippines

CHAPTER 1 THE PROBLEM AND ITS SCOPE INTRODUCTION Rationale of the Study Paternalistic management approach is a father-like treatment but gives a certain amount of freedom. It is a type of leadership style that focuses more on the welfare of patients but gives a firm decision for everyone. It is a modification of an autocratic management yet it provides patients feedback. A typical paternalistic management approach gives exact details as to why there are certain actions to be taken in managing patients in a certain way.It has been practiced for so many years by many medical professions. Although, this approach still finds an opposition, it continued to thrive as an effective approach in dealing with some difficult patients. Most Filipino workers find a Business Process Outsourcing (BPO) company as a source of income in today’s century. The Business Process Outsourcing (BPO) company hires call center agents in the local area. The nature of their work is taking calls from the cli ents and providing information to the consumers. It is a high paying job with health insurance and benefits.Some people chose this kind of work even though it has some disadvantages. Call center agents encountered health problems while working in their designated area. A clinic break is a privilege in some Business Process Outsourcing (BPO) companies. Some call center agents use this clinic break when they are not feeling well. But some of them abuse this privilege just to avoid taking calls or even to avoid going to work. These patients usually complained of being sick or any other illnesses just to be excused from their own work. Company nurses find it quite difficult in handling this kind of condition in the clinic.As a nurse working in a company, one has to do something in making decision for the best interest of the patient and for the productivity of the company. A company nurse must be able to understand the line of work especially in dealing with difficult patients. For inst ance, in a company, some call center agents are just malingering. Malingering is trying to escape from their work and has to use some means for their own personal benefit. A company nurse must be able to distinguish and find an effective solution to deal with this kind of situation.At times, it is difficult to comprehend the nature of such illness every time a patient complained of being sick. The company nurse has an authority to send home call center agents when they are actually ill. The problem arises when some call center agents pretended they are sick. Thus, a company nurse must assess the patient before the call center agent will be sent home. The researcher chose to conduct a study about paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) Company. This to determine on how it will help the company nurses in dealing with these patients.The researcher has personal experiences in dealing with malingering patients. The researcher is inquisi tive and is willing to learn for the betterment of the welfare of others. Also, the researcher is competent to gather the needed data since she has been working for two consecutive years in a Business Process Outsourcing (BPO) company. Furthermore, the researcher believed that it is a good thing to cater the needs of everyone regardless if it’s true or not. A good company nurse is willing to serve for whatever purpose it will lead. Malingering is just a tactical method of a patient that is needed to be understood.The need of the patient should be provided since service is the key in nursing. Theoretical Background This study is anchored on the paternalistic management approach of company nurses in Business Process Outsourcing (BPO) Company. Paternalistic management style In a nutshell this management style tells the people what is best for them. This may sound the same as the autocratic style, but with the Paternalistic style of management, the business leaders are looking fo r the input of their employees. The business leader will make the final decision but not without careful consideration of the feedback.This gives the employees the opportunity to voice their opinions and ideas. This also allows for more awareness of the employees needs, as people rather than just plain business (Montana, 2008). Paternalistic management style has the same authoritarian dynamic. It is a bit more warm and fuzzy in its approach. It is like being at home with parents that are involved in every aspect of your life. Higher likelihood that employees will be motivated or feel some loyalty based on the concern shown towards them by management (www. universitydissertations. com).Paternalism is the interference of a state or an individual with another person, against their will, and defended or motivated by a claim that the person interfered with will be better off or protected from harm. The issue of paternalism arises with respect to restrictions by the law such as anti-drug legislation, the compulsory wearing of seatbelts, and in medical contexts by the withholding of relevant information concerning a patient's condition by physicians. At the theoretical level it raises questions of how persons should be treated when they are less than fully rational (Husak, 2003).If one believes that sometimes paternalism is justifiable one may do so for various kinds of theoretical reasons. The broadest is simply consequentialist, i. e. more good than harm is produced. A narrower justification is that sometimes the individuals (long-run) autonomy is advanced by restricting his autonomy (short-run). So one might prevent people from taking mind-destroying drugs on the grounds that allowing them to do so destroys their autonomy and preventing them from doing so preserves it. This is essentially Mill's argument against allowing people to contract into slavery.Note that if the theory of the good associated with a particular consequentialism is broad enough, i. e. , includ es autonomy as one of the goods, it can be equivalent to the autonomy theory (assuming that the structure of the autonomy view is a maximizing one). A different theoretical basis is (moral) contractualism. On this view if there are cases of justified paternalism they are justified on the basis that we (all of us) would agree to such interference, given suitable knowledge and suitable motivation.So, for instance, it might be argued that since we know we are subject to depression we all would agree, at least, to short-term anti-suicide interventions, to determine whether we are suffering from such a condition, and to attempt to cure it. More generally, we might accept what Feinberg called â€Å"soft paternalism. † This is the view that when we are not acting fully voluntarily it is permissible to intervene to provide information, or to point out defects in our rationality, but that if we then do make a voluntary choice it must be respected.Or we might agree to being forced to w ear seat-belts knowing our disposition to discount future benefits for present ones. The justification here is neither consequentialist nor based simply on the preservation of autonomy. Rather either kind of consideration may be taken into account, as well as others, in determining what we would reasonably agree to (Sunstein, 2003). When managers try to act as father figures to their employees, they are practicing paternalistic management approach. These managers often give attention to their employees' social needs to maintain engagement and productivity.Paternalistic management training style also involves decision making without employee consultation. The only difference it has with authoritarian style is that decisions are made considering the employee's best interests. Although employees did not have decision making participation, their welfare was considered, thus increasing employee motivation. Most of the time, surveys and investigations are conducted to know how employees w ill take a certain decision especially when changes are implemented (www. ehow. com). Paternalistic  managers give more attention to the social needs and views of their workers.Managers are interested in how happy workers feel and in many ways they act as a father figure (pater means father in Latin). They consult employees over issues and listen to their feedback or opinions. The manager will however make the actual decisions (in the best interests of the workers) as they believe the staff still need direction and in this way it is still somewhat of an autocratic approach. The style is closely linked with Mayo’s Human Relation view of motivation and also the social needs of Maslow (www. tutor2u. net). However, there’s more to influencing than just passing along orders.The example you set is just as important as the words you utter. And you set an example – either good or bad – with every action you take and word you speak, on or off duty. By using your words and example, you must communicate purpose, direction, and motivation to them. Whilst â€Å"paternalism† is defined as a kind of system under which an authority undertakes to supply necessities or regulate conduct of those under its control in matters of affecting them as individuals as well as in their relationships to authority and to each other.Thus paternalism is to supply needs for those under its protection or command, while leadership is to get things done. Paternalism is directed inwards, while leadership is directed outwards (www. ed-leadership. com). In its paternal aspect, it harkens in the line of a father being firm though has good intentions in the life of one’s children and in the business limelight, the employees. The typical paternalistic manager most of the time explains the specific reason as to why he has taken certain actions in management and for his employees (Sullivan, 2005).Two-factor theory distinguishes between: Motivators  (e. g. , c hallenging work, recognition, responsibility) that give positive satisfaction, arising from intrinsic conditions of the job itself, such as recognition, achievement, or personal growth, and Hygiene factors  (e. g. status,  job security,  salary,  fringe benefits, work conditions) that do not give positive satisfaction, though dissatisfaction results from their absence. These are extrinsic to the work itself, and include aspects such as company policies, supervisory practices, or wages/salary.Essentially, hygiene factors are needed to ensure an employee is not dissatisfied. Motivation factors are needed to motivate an employee to higher performance. Herzberg also further classified our actions and how and why we do them, for example, if you perform a work related action because you  have  to then that is classed as  movement, but if you perform a work related action because you want  to then that is classed as motivation (www. netmba. com).Health promotion is defined as behavior motivated by the desire to increase well-being and actualize human health potential. It is an approach to wellness. On the other hand, health protection or illness prevention is described as behavior motivated desire to actively avoid illness, detect it early, or maintain functioning within the constraints of illness (Kozier, 2004). Health promotion services are essential for improving the health of populations everywhere.It is noted that people of all ages can benefit from the health promotion care, which should be delivered at sites where people spend much of their time (eg schools and workplaces). Nurses can develop and execute health promoting interventions to individuals, groups, and families in schools, nursing centers, occupational health settings and the community at large. Nurses should work toward empowerment for self care and enhancing the client's capacity for self care through education and development (Wills,2007).Business process outsourcing or BPO is one of the fastest growing industries worldwide and this is especially true in the Philippines where offshore call center outsourcing services have led the business process outsourcing industry into tremendous growth. The Philippines is has proven to be an excellent venue for offshore call center outsourcing services for three important reasons: the country’s low labor costs, presence of reliable technology and availability of college graduates who posses high level of English and IT skills.Call centers in the Philippines operate 24 hours a day, 7 days a week. They handle inbound and outbound calls and are able to offer multilingual offshore call center outsourcing services in different fields of business to include customer care, marketing, sales, technical support, among others. Offshore call center outsourcing services in the Philippines cater to various industries such as retail, financial services, technology, travel and hospitality and telecommunications, among others (www. piton-global. com).The  Filipino call center industry has helped the country move up the ladders of technological advancement and living standards, leaving its fellow developing countries behind. In the rat race of development, the arrival of the Filipino call center has made such an impact to the once laid-back, culturally torn, and politically chaotic nation. It is therefore right to say that the Filipino call center and BPO industry is a breakthrough for Philippine society and a blessing to its people. What basically makes the industry a breakthrough is its ability to address unemployment in significant percentages.Although it is true that several turnovers occur, the number of hired Filipino call center workers, along with the growing number of call centers that are launching mass recruitment campaigns, are big enough to overshadow turnover incidences. The Filipino call center and BPO industry has been the undisputed number 1 employer for years now and, in view of its current position as the leading BPO hub in the world, it will continue to do so for many years to come. That in itself will make Filipino call center agents proud to be part of this breakthrough undertaking.As for being blessed, anyone who has worked in the Filipino call center industry and stayed there longer would attest to that. Many in the Filipino call center labor force are very grateful that their work is able to pay their monthly bills, send their children to school, or support their families living somewhere in the provinces. Work in Filipino call centers is also a favorable set up for the young and dynamic, who can keep up with the latest gigs as well as maintain their upbeat lifestyle.One of the problems faced by the Filipino call center industry is the fast turnover of its agents. At a distance, this seems like an uncontrollable problem. The real deal is that attrition in the industry can be prevented, if not solved. What management has to do is to assess the important fact sur rounding the Filipino call center workforce: majority of them are young. The youth has a set of common traits that make them prone to employment dilemmas. Being young is always accompanied by a sense of dynamism and adventure.Working in a Filipino call center company may frustrate them in the long run. For one thing, Filipino call center agents just stay in one place for the whole of eight hours. The routinary tasks of reading scripts daily, updating call leads, and filling information in the call log, and other repetitive speech and duties make young people working for Filipino call centers feel as if their life is being compromised. Thus, they would once more search for jobs that will afford them utmost freedom or at least provide them with enough motivation to work.Furthermore, there is a growing trend of materialism among them because the industry they belong to pays higher than the rest – even the government for that matter. Most Filipino call center firms are also situa ted at highly commercialized areas or economic zones, through which famous restaurants and coffee shops, top brands, and dusk-‘til-dawn bars plough their trade. One of the challenges of employers is to divert the attention of these young workers from such a worldly culture and bring back their purpose-driven and career-oriented idealism (www. filipinocallcenter. om). The above theories and literature served as the backbone of this study and this will serve as a basis for conducting a study to determine the paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) company. THE PROBLEM Statement of the Problem This study will determine paternalistic management approach of company nurses in a Business Process Outsourcing (BPO) company. Specifically, this study will seek answers to the following inquiries: 1. What is the background characteristics of the respondents in terms of: 2. age; 2. 2 gender; 2. 3 civil status; 2. 4 years of formal educatio n? 2. What is the level of knowledge of the respondents on Paternalistic Approach of Management? 3. What is the level of Paternalistic Approach Practices of the respondents? 4. Is there a significant relationship between the following: 5. 5 Profile and Level of Knowledge 5. 6 Profile and Level of Practice 5. 7 Level of Knowledge and Level of Practice? 5. How has the Paternalistic approach influenced the working relationship between the respondents and the call center agents? 6.How has the call-center agents responded to the Paternalistic Approach of the respondents? Statement of the Null Hypothesis Ho1. There is no significant relationship between the following: 1. 1 Profile and Level of Knowledge; 1. 2 Profile and Level of Practice; 1. 3 Level of Knowledge and Level of Practice. Significance of the Study Paternalistic management approach can be a great help in terms of dealing in a difficult situation. Thus, a nurse must be able to comprehend the needs of every patient visiting the clinic. The result of the study would benefit the following:The Company Nurses. They will find some methods or approaches in treating and caring for their patients. They will also be able to facilitate on improving some of the clinic policies regarding health issues of their patients. The Call Center Agents/Workers. This study will be able for them to appreciate the importance of health and its benefits when given proper treatment and proper evaluation. The Team Leaders of each Operation. They will give awareness in dealing with their agents who frequently visited the clinic The Administrators of Business Process Outsourcing (BPO) Company.They will find ways and means to cater the needs of their employees regarding health issues and health problems. The Researcher. Through this study the researcher will be able to give some insights about health management and approaches. Future Researchers. This study will serve as future reference for further research study in the future. RESEARC H METHODOLOGY Research Design This study will utilize the descriptive-correlational survey method using qualitative and quantitative approaches to determine the paternalistic management approach of company nurses in a Business Process Outsourcing company.Research Environment This study will be conducted at Wipro BPO Phils. , located at Cebu Business Park in Cebu City and headed by its country head Mr. Gupta Romit (an Indian citizen). Mr. Rex Bispo is the senior manager of Wipro BPO Phils. Branch of Cebu. Since there are Wipro companies situated all over the world. The company started its operation in January 2008 with 400-500 employees at that time. The company occupied the ground floor, 9th floor, 10th floor, 11th floor and 12th floor in the building. The clinic is located at the 11th floor and is manned by a registered nurse.The clinic schedule is 24/7, from Monday to Sunday and it is even open during holidays. The employees ask some over the counter medicines in the clinic to aid their condition. Since they are allowed to have an hour rest for the day, they will have to ask permission from their team leaders or supervisors to do so. Now, there are 700-1000 employees working at Wipro BPO Phils. And even have another branch in Manila which started their operation on 2010. Research Respondents This study included 3 company nurses as key informants.They will answer the Part I-IV of the questionnaire. There will be 8 selective call-center agents as the respondents for the Part V of the research tool. This study used a universal sampling in gathering data. Research Instrument The study will use a researcher-made questionnaire to be used as an interview guide. The questionnaire will be divided into 5 different sets. The Part I is the profile of the key informants. The Part II is for the Level of Knowledge with its parameter limit. The Part III is the Level of Practice with its parameter limit.The Part IV is based on the Influenced of paternalistic management appro ach using qualitative questions. The Part V is the response of the Call Center agents regarding the paternalistic management approach using qualitative questions. Research Procedures Data Gathering The researcher will make transmittal letters in allowing a research study. These letters of requests are for asking permission to conduct a survey. Pre-testing will be done. After the pre-testing, the questionnaire will be then revised to fit for the actual study.The questionnaire included important queries to relate to the study of Paternalistic Management Approach of Company Nurses in Business Process Outsourcing Company. The questionnaire will be then distributed to company nurses and selective call center agents. Each respondent will be given 20-25 minutes to answer the researcher-made questionnaire. The researcher will be visiting everyday for data gathering. After the retrieval of the questionnaire, it will be tallied, tabulated, analyzed and then interpreted as based on the gathere d data. Data AnalysisTo get the result of demographic profile of the company nurses, Simple Percentage will be used. To determine the responses rating of company nurses in the Level of Knowledge and the Level of Practice, Weighted Mean will be used. It will be then categorized and given weight using a â€Å"Likert’s Four Point Rating Scale† The assigned equivalent weights of the responses will be: Level of KnowledgeLevel of Practice 4= Very Important4= Often 3= Important3= Sometimes 2= Unimportant2= Seldom 1=Very Unimportant1= Never The parameter of every response category will be defined through these limits: Level of KnowledgeLower Limit| Upper Limit| Response Category| Interpretation| 3. 26| 4. 00| Very Important| Very Good| 2. 51| 3. 25| Important| Good| 1. 76| 2. 50| Unimportant| Fair| 1. 00| 1. 75| Very Unimportant| Poor| level of Practice Lower Limit| Upper Limit| Response Category| Interpretation| 3. 26| 4. 00| Often| Very Good| 2. 51| 3. 25| Sometimes| Good| 1 . 76| 2. 50| Seldom| Fair| 1. 00| 1. 75| Never| Poor| The Chi-Square will be utilized to determine the relationship between the Profile and Level of Knowledge, and Profile and Level of Practice.To determine the relationship between the Level of Knowledge and Level of Practice of company nurses, the Pearson-r will be used. The Thematic Content Analysis will be utilized to get the result of the responses of Part IV and Part V of the research tool. DEFINITON OF TERMS For a clear understanding of the thesis, the following terms are defined operationally. Background Characteristics-is the description of the key informants who are being studied. It is use to identify age, gender, civil status and years of formal education.Call Center Agents – means people that are hired in a Business Process Outsourcing (BPO) company. Their opinions and views are being studied regarding the Paternalistic Management Approach. Company Nurses-emphasizes the key informants of this study. They are regis tered nurses working in a Business Process Outsourcing (BPO) company. Influence –refers to the outcome of Paternalistic Management Approach between the working relationship of Company Nurses and the Call Center Agents. Knowledge on Paternalistic Approach- implies on the understanding of Paternalistic Management Approach.Level of Knowledge- means the degree of understanding about Paternalistic Management Approach of Company Nurses working in a Business Process Outsourcing (BPO). Having variables of very important, important, unimportant, and very unimportant. Level of Paternalistic Approach Practice- refers to the degree of a repeated action of Paternalistic Management Approach of Company Nurses working in a Business Process Outsourcing (BPO) company. Paternalistic Approach- means a father-figure kind of a method which has a softer side when company nurses are dealing with patients who are working in a Business Process Outsourcing (BPO) company.Paternalistic Approach Practice- implies on the repeated action of the Company Nurses using Paternalistic Management Approach in a Business Process Outsourcing (BPO) company. Respondents- are the key informants of this study. The Company nurses are the one who are being studied. Response-refers to the reaction of the Call Center Agents regarding the Paternalistic Management Approach as practiced by Company Nurses in a Business Process Outsourcing (BPO) company.

Rhetorical Analysis A Tryst With Destiny - 1254 Words

YASH MAHENDRA RUPAWAT RHET 1302.203 DR SARA KEETH 6TH SEPTEMBER,2017. RHETORICAL ANALYSIS: FIRST DRAFT â€Å"A TRYST WITH DESTINY†: BY PANDIT JAWAHARLAL NEHRU â€Å"A Tryst with Destiny† is regarded by many as one of the most prolific and well written political speeches of the 20th Century. Pandit Jawaharlal Nehru was the first Prime Minister of Independent India. He addressed this iconic speech to the Indian Constituent Assembly on the eve of India’s Independence Day at New Delhi, India. Pandit Jawaharlal Nehru was a highly revered personality in Indian politics. He had the rare ability to connect with the masses. This speech, too, was aimed to strike a chord with the common people. He aimed at inspiring the people to strive together towards a†¦show more content†¦In the initial parts of the speech he constantly talks about ‘freedom’, ‘success’ and ‘new hope’. This sets up an inspirational tone to the speech. But he does not fail to mention that ‘the achievement they celebrate’ is actually the start of a new journey. He points out that the future is not an easy one but is filled with hurdles and obstacles. Incessant striving is necessary to overcome these challenges. He, further, outlines the major problems that India were facing: ‘poverty’, ‘ignorance’, ‘disease’ and ‘lack of opportunity’. But he follows this with words of optimism. He draws reference from the ambitions of Mahatma Gandhi and pledges that their work will not be over till ‘they wipe every tear from every eye’. This is how he sets up the structure of a major portion of his speech. Alternating between sad and optimistic tones. He goes back and forth between the struggles of the past and the opportunities of the bright future. He mentions that India has struggled for ‘trackless centuries’ for its freedom. But now, they have an opportunity for greater triumphs. He acknowledges the pain and suffering the people of this country had endured. But he assures that the future will be better. He knows that the sorrows and harsh memories of the past will ‘still cling to us’ but believes that these sorrows will give rise to new hopes. He also talks about the most dark and tragic aspects of their Independence. He remembers those ‘unnamed volunteers and soldiers of