Dividend Policy

Dividend policy – dividend irrelevance & dividend relevance discussion

Theory introduction

The question for the effect of dividends on share prices has been a controversial one for many years. There are two contradictory theories surrounding that dividend irrelevance theory and dividend relevance theory.

Dividend irrelevance theory

This theory is originated with a paper published by Miller and Modigliani. They argued that share valuation is a function of the level of corporate earnings, which reflects a company’s investment policy, rather than a function of the proportion of a company’s earnings paid out as dividends.  To get those conclusions, they have set up 4 assumptions.

1.       There are no transactions costs associated with converting shares into cash by selling them.

2.       Firms can issue shares without incurring flotation or transactions costs.

3.       There are no taxes at either a corporate or a personal level.

4.       Capital markets are perfectly efficient.

Dividend relevance theory

Litner and Gordon argued that dividends are preferred to capital gains due to their certainty.  This often referred to as ‘the bird in the band’ argument and means that an investor will prefer to receive a certain dividend payment now rather than leaving the equivalent amount in an investment whose future value is uncertain. Current dividends, on this analysis, represent a more reliable return than future capital gains.

 

Discussion the relative correct of two theories

It is possible to criticise a number of the assumptions made by Miller and Modigliani as being unrealistic. The reason is to refute those four assumptions of Miller and Modigliani.

1.       Transaction costs are not zero and so there is a price to be paid by investors who try to sell their shares to create a ‘home-made’ dividend; this means that capital gains are not a perfect substitute for dividends in cash flow terms.

2.       Taxation does exist in the real world, at both a corporate and a personal level, further distorting the required equivalence of dividends and capital gains.

3.       Securities do incur issue costs.

4.       Information is not necessarily freely available: investors will have to expend time and money in acquiring it.

 

Case verification

Theory based: Dividend relevant theory

Assumption: Dividend amount has positive relationship with the share price.

Methodology:

1.       Choose 5 corporations from London Stock Exchange FTSE 100 randomly.

2.       Comparing the dividend amount in 2012 and 2013.

3.       Analysing the share price before and after dividend announcing date.

Finding:

1.       A.B. Food, BT GROUP, HSBC HLDGS. UK, SEVERN TRENT, WPP have been chosen as data samples.

Corporation	Dividend 2013	Dividend 2012	Record date	Share price float
A.B Food	22.65p	20.0p	5 Nov.	+1.05%
BT GROUP	8.7	7.6	23 Dec.	+0.97%
HSBC HLDGS. UK	30.47p	31.32p	24 Dec.	+1.12%
SEVERN TRENT	45.51	42.06p	21 June	-3.08%
WPP	30.27p	25.94p	10 Nov.	-

           (Resource: London Stock Exchange, n.d.;London Stock Exchange ) (PS: The stock price of WPP on 10^th Nov. 2013 does not show on London Stock Exchange)

Conclusion: The assumption is incorrect as share price does not only effect by dividend policy.

Limitation and futher research: More rigourous assumtion and methodology should be used in futher research.

 

 

Reference:

Abf,. (n.d.). ABF plc - Investors - Shareholder services - Dividend history. Retrieved 1 April 2014, from http://www.abf.co.uk/investorrelations/shareholder_services/dividend_history

Hsbc.com,. (n.d.). HSBC Holdings plc - Dividend history. Retrieved 1 April 2014, from http://www.hsbc.com/investor-relations/dividends/dividend-history

Severntrent,. (n.d.). Dividend payment history : Dividends : Shareholder centre : Investors : Severn Trent PLC. Retrieved 1 April 2014, from http://www.severntrent.com/investors/shareholder-centre/dividends/dividend-payment-historyTop of Form

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Capture Structure

Contemporary Issues in international Finance 2 - crowdfunding extansion Research

Contemporary Issues in International Finance 2

-          Crowdfunding extension research

 

In previous blog, I have brief talking about the crowdfunding regulation in America. However, technology development is existed in all over the world. Except America, some other countries, such as China, does not have specific regulation for crowdfunding. Therefore, this blog would compare the crowdfunding between America and China to study the further development of those emerging country.

Previous review:  crowdfunding is firstly regard as likely illegal funding and turn to regular after Jumpstart Our Business Startups Act regulation has been signed in 2012.

Then, in current China, Crowdfunding has similar threaten as regarding as illegal funding. From current Chinese Corporation Law, exceeding 200 people nongovernmental funding would regard as illegal funding. Then, some current crowdfunding corporation are limited under that regulation which would not develop well.  After comparing several differences between Chinese financial market and American financial market which would be discussed in the following, the reason of low ebb around crowdfunding in China might be got.  

Firstly, funding environment is different. Comparing complicated and polybasic funding market in America, there are few funding methods in China, in particular for micro-corporations and creation corporations. Therefore, crowdfunding would be possible developed rapidly in China.

However, as credit system is different, crowdfunding development would be limited in China. There is perfect and mature credit regulation, organization to support financial activities in America. However, this kind of system is typically weak in China. For investors, the credit of project starters and crowdfunding corporations is significant. Then, some swindle crowdfunding corporations are frequent exist recently in China. Therefore, crowdfunding in China could not develop well the same as America. Even though, there are some licenses are made by Chinese government to help investors distinguish relatively trusted corporations. As the weaken credit system, it is difficult for government and central bank themselves to distinguish some fresh corporations.

Moreover, the differences in regulation environment would be the significant reason to show the limitation of crowdfunding in China. In 2012, America set up a Jumpstart Our Business Startups Act to crowdfunding exemption. However, there isn’t any specific regulation for crowdfunding in China although Chinese government shows some support and positive view on crowdfunding future development. Moreover, current regulations are limiting the development of crowdfunding.

Except crowdfunding, there are some more technological and financial related area has been unified and named as internet finance in China (Xie & Zou, 2012). In China, some experts defined internet finance in 6 patterns, such as Peer-to-Peer lending, big data finance, crowdfunding, the third part payment, internet finance website and technological financial organization. The other five internet finance situation is similar as crowdfunding in China. First of all, according to the China Development Bank (2013), Chinese government have promoted financial inclusion system by the “Decision of the CPC Central Committee on Several Major Issues Concerning the Comprehensive Deepening of Reforms” announced at the Third Plenary Session of the 18^th CPC Central Committee. To make finance inclusive, internet finance could be used as a popular and simplified finance model (Xie & Zou, 2012). However, according to the Economist (2014), some revolute financial system like internet finance could be hard to survive in some complicated environment, such as China, as its difficult control.  Thus, internet finance has well finance but currently limited.

 All in all, beside crowdfunding, internet finance would have good prospect in China but regulations should be established as soon as possible.

Bibliography:

Cdb,. (n.d.). CHINA DEVELOPMENT BANK. Retrieved 18 March 2014, from http://www.cdb.com.cn/english/NewsInfo.asp?NewsId=4886

The Economist,. (2014). Foe or frenemy?. Retrieved 18 March 2014, from http://www.economist.com/news/finance-and-economics/21597966-chinas-giant-banks-are-under-attack-foe-or-frenemy

Thinksaas,. (2014). differences between America and China in Crowdfunding. Retrieved 18 March 2014, from http://www.thinksaas.cn/news/show/5471/

Xie, P., & Zou, C. (2012). Internet financial model research. Financial Research.

 

Contemporary Issues in International Finance 1 - crowdfunding class case based analysis

Contemporary Issues in International Finance 1

-          Class Case (Kick Starter) based analysis

General knowledge introduction

Kickstarter is a Crowd Funding platform which is stated mission is to help bring creative projects to life. People who back Kickstarter projects are offered tangible rewards and special experiences in exchange for their pledges (Kickstarter, n.d.).

Crowdfunding  is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet (Oxford Dictionary, n.d.).

After Kickstarter lauched in 2009, there is a furious debating on that website as it seems to be illegality funding with high success project’s rate. On the one hand, the New York Times (2011) called Kickstarter "the people's NEA" as well as the Time named it one of the "Best Inventions of 2010" and "Best Websites of 2011" (McCracken, 2011). Other other hand, as the high subscribe rate in Kickstarter, some projects may exceed 100 thousands people to invest it which become the typical irregular funding case. Moreover, as Kickstarter  is different from P2P pattern which has been control by current laws, Kickstarter is  exceed the all of exemption regulation in America. However, in America, the Crowdfunding situation has been efficient control since Jumpstart Our Business Startups Act regulation has been signed in 2012 (Goins & Little, 2014). After its specific regulation has been set up, Crowdfunding are generally turned into a normal and regular pattern in current financial market.

Class case reflection

Based on previous brief introduction and regular analysis on crowdfunding, some further ideas related to crowdfunding based on Kickstarter case are got after class study. In the international finance and financial management seminar, we have been separated into four teams and create our projects to crowdfunding from other classmates. Four teams would be generally classified to 4 types of projects: innovation technology, computer games, electric project, shoes creation project. First of all, after comparing with four projects, there is another regular could be found around this area. In the seminar, an innovation technology project related to translation is the most popularity project in that class. Moreover, it could be found that, the more life related projects win more investors’ attention.  Then, although, according to Kickstarter (2014), it seems that most of projects in Kickstarter are related to arts, such as: films, music, stage shows, comics, journalism, video games and food-related projects. From the class projects, it seems that some projects related to computer and high technology could be the primary elements of crowdfunding.  However, this kind of structure basis of crowdfunding may increasing to risk impact of crowfunding and lead financial crisis. According to Galbraith and Hale (2004), there is a typical risk could be found in technology based company which called ‘the dot-com bubble’.  It seems that the value rise of technological corporations is rapidly, but it maintain high risk and would lead to financial crisis. For example, the collapse of the bubble took place during 1999-2001. In that period, some corporations like Pets com is completely failed, some corporations like Cisco has declined lots of value but remain stable and profitable as well as some corporations like Amazon.com has reduced  a lot but recovery and exceed several years later. Then, combining with the crowdfunding risk on trust security, the high risk of technology project in crowdfunding should be challenged, highly paid attentions and  study in following financial study.

 

 

 

References:

Galbraith, J., & Hale, T. (2004). Income distribution and the information technology bubble.

Goins, T., & Little, E. (2014). Crowdfunding. Investment Lawyer, 21(1), 3-7.

Kickstarter,. (2014). One Billion Dollars. Retrieved 16 March 2014, from https://www.kickstarter.com/1billion?ref=promo&ref=PromoNewsletterMar0314

Oxford dictionaries,. (n.d.). crowdfunding: definition of crowdfunding in Oxford dictionary (British & World English). Retrieved 16 March 2014, from http://www.oxforddictionaries.com/definition/english/crowdfunding

McCracken, H. (2011). I just discovered Kickstarter on TIME's list of Best Websites. Explore it and more must-see sites on TIME.com. TIME. Retrieved 16 March 2014, from http://content.time.com/time/specials/packages/article/0,28804,2087815_2088176_2088182,00.html

WALKER, R. (2011). Log In - The New York Times. Nytimes. Retrieved 16 March 2014, from http://www.nytimes.com/2011/08/07/magazine/the-trivialities-and-transcendence-of-kickstarter.html?pagewanted=all&_r=0

 

 

 

 

 

International Business Investment Opportunities: International Merger and Acquisitions (Facebook case analysis)

Facebook: Facebook is an online social networking service to connect people with friends and others who work, study and live around them.

Whatsapp: Whatsapp is a proprietar, cross-platform instant messaging subscription service for smartphones. In addition to text messaging, users can send each other images, video, and audio media messages as well as their location using integrated mapping features. 

On Feburary 19th, Facebook founder Mark Zuckerberg make a full statement to announce that Facebook have agreed to acquire Whatsapp in a deal worth a total of $19bn in cash and shares.

From above table, Facebook have already merger 10 companies. However, Whatsapp is the largest merger case in Facebook acquisition history. It should be mentioned that Whatsapp acquisition is not the first over value merger case. There is another merger case on Facebook which is Facebook and Instagram merge in $1 bn on April 2012. At first, people thought that Facebook bought Instagram for its IPO. Moreover, the Instagram acquisition could be cared as another good case like Google merger Youtube. However, the slump on Facebook stock on May 2012 prove that those unseen profit technological corporations have high risk. From 1 billion photo quantity of Instagram on May 2012 and 0.4 billion every month active user of Whatsapp on December 2013, those two company seems to have high potential which could be a strong competitor of Facebook in the future. Therefore, those two merger cases are seems that Facebook is eliminating its  predicting competitors by acquisition. Although Whatsapp have high potential, $ 19 bn of Whatsapp acquisition is too much. What benefit could bring from Whatsapp acquisition?

Are target firms poor performers?

As Facebook and Whatsapp are both on network social service, its active user is its value. There are 1 billion active users of Facebook on September 2012 and 90 million active users of Whatsapp on January 2013. That is to say, Facebook active user is much more than Whatsapp. According to Arnold (2008, p888), Whatsapp could increase its profitability from this acquisition.

Do the shareholders of acquires gain from mergers?

Although, as the influence of privacy problem, Facebook stock price is mainly increasing since 19th Feburary.

Do target shareholders gain from mergers?

In Facebook & Whatsapp acquisition, the biggest winner should be Sequoia Capita which is Whatsapp shareholder. As Whatsapp has been financing just 1 million and Facebook merger Whatsapp on $19 billion, it could be brief calculated that Sequoia Capita would gain $1.6 billion which is 200 times of it initial investment if Sequoia Capita hold 10% Whatsapp shares.

Do the employees gain?

According to Facebook(2014) statement, “the agreement also provides for an additional $3 billion in restricted stck units to be granted to Whatsapp’s founders and employees that will vest over four years subsequent to closing.” That is to say, early employees reported have 1 percent stakes, which yields each of them $160 million each.

Do the directors of the acquirer gain?

As Facebook & Whatsapp acquisition case is the biggest acquisition in network industry, Mark Zuckerberg would gain more reputation from that.

Do the directors of the target gain?

Whatsapp CEO Jan Koum owns a 45% equity stake, which makes him worth $6.8 billion while cofounder Brain Acton gets $3 billion for his 20 percent stake.

Do the financial innsitutions gain?

As Facebook & Whatsapp acquisition case is the biggest acquisition in network industry, both Facebook adviser (Allen & Co. And Weil, Gotshal & Manes) and Whatsapp adviser (Fenwick & West) could possible gain reputation from that.

Does society benefit from mergers?

As Facebook would connect with Whatsapp in the future, the progress of social service would fast as two corporation technology and resources would link together. 

The popularization and importance of instant message would be paid more attention to. For example, Blackberry was increasing its stock price from $9.01 on Feb. 21st 2014 to $10.04 on Mar. 6th 2014 as its BBM could possible have high value under Whatsapp high acquisition consideration. 

However, from the 3.09% Tencent stock price decreasing on 20th March 2014, another competitor of Facebook (Wechat) was threaten by this acquisition as Instagram has high utilization in emerging country in particular China and Facebook originally has not. 

It should be mentioned that Facebook & Whatsapp acquisition has been challenged as this case is going against Whatsapp privacy protection regulation. Many user of Whatsapp are worried that their personal privacy would threaten by this acquisition. In addition, as Facebook is continued merger its competitors could have an effect on network social service mnopolization. Therefore, both Facebook and Whatsapp could be the winner of this acquisition without their users.

At last, although, the sum of acquisition is too much and network industry has high risk, comparing with the similar acquistion on Instagram, Instagram has a huge increasing progress and provides electric advertising business profit for facebook which may show a positive expect.

International Business Investment Opportunities: Trends and Theory of Foreign Direct Investment (FDI)

This blog would analyse the Foreign Direct Investment trends in China under recent Federal Reserve Meeting.
Foreign Direct Investment Introduction
Foreign Direct Investment definition: The purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control.
Key competitive advantages to originate and sustain foreign direct investment:

1.      Economies of scale and scope can be developed in production, marketing, finance, research and development, transportation, and purchasing.

2.      Managerial expertise includes skill in managing large industrial organizations from both a human and a technical viewpoint.

3.      Advanced technology includes both scientific and engineering skills.

4.      Companies demonstrate financial strength by achieving and maintaining a global cost and availability of capital.

5.      Firms create their own firm-specific advantages by producing and marketing differentiated products.

6.      A strongly competitive home market can sharpen a firm’s competitive advantage relative to firms located in less competitive home markets.

Identify factors and forces that must be considered in the determination of where multinational enterprises invest.
In theory, a firm should identify its competitive advantages. Then it should search worldwide for market imperfections and comparative advantage until it finds a country where it expects to enjoy a competitive advantage large enough to generate a risk-adjusted return above the firm’s hurdle rate.
In practice, firms have been observed to follow a sequential search pattern as described in the behavioural theory of the firm. Human rationality is bounded by one’s ability to gather and process all the information that would be needed to make a perfectly rational decision based on all the facts.
 
Quantitative Easing Policy Reducing Analysis on Foreign Direct Investment Trends in China
January Federal Reserve (2014) state that

''To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. ''

According to FengHuang (2013), the reducing of QE would make big structure changes in Chinese capital market. There are several influence of Chinese capital market would be analysed in the following.

1.      The profitability of bond would increase and credit would turn to intensive.

2.      Import trading would decrease in China.

3.      Most emerging economy currency would depreciate, but RMB may continue appreciating.

4.      Stock market would decrease.

However, it should be mentioned that, Chinese Yuan has been depreciated in Jan. and February and March.

If QE decrease with each passing day, plenty of capital would possible draw out Chinese capital market. Therefore, it seems that the decreasing of FDI in China would be the direct factor influenced by QE reducing and have effect on other capital market aspects.
However, some other experts announced that the reducing of QE could possibly have positive effect on opening Chinese capital account. Although, there are several factors shows that opening Chinese capital account have benefits on capital floating balanced management, capital structure revolution, RMB globalization, it still should be concerned cautiously.
Except forecasting procedure - the reducing of Quantitative Easing Policy, Federal Reserve officials started debating raising interest rates which is not expected before. If American Federal Reserve raising its interest rates, some capital in China would turn back to America and the Foreign Direct Investment would extremely decrease, in particular in those large-scale capital industry such as real estate industry and finance industry.

 

Bibliography:

Federalreserve.gov,. (n.d.). FRB: Press Release--Federal Reserve issues FOMC statement--January 29, 2014. Retrieved 24 February 2014, from http://www.federalreserve.gov/newsevents/press/monetary/20140129a.htm

Finance.huanqiu.com,. (2013). 美联储QE退出:中国恐难独善其身 外贸将首受冲击_财经_环球网. Retrieved 20 February 2014, from http://finance.huanqiu.com/data/2013-06/4048825.html

Financial Times,. (2014). China slowdown? FDI inflows confound the sceptics. Retrieved 20 February 2014, from http://blogs.ft.com/beyond-brics/2014/02/19/china-slowdown-fdi-inflows-confound-the-sceptics/?

Ftchinese.com,. (2012). 资本账户开放应谨慎 - 评论 - FT中文网. Retrieved 20 February 2014, from http://www.ftchinese.com/story/001043661

Lim, J., Mohapatra, S., & Stocker, M. (2014). Tinker, Taper, QE, Bye? The effect of quantitative easing on financial flows to developing countries. Retrieved from http://jamus.name/research/if9.pdf

Moffett, M., Stonehill, A., & Eiteman, D. (2006). Fundamentals of multinational finance (1st ed.). Boston, Mass.: Pearson/Addison-Wesley.
 

 

Corporate Risk Management & Multinational Tax Management

Corporate Risk Management & Multinational Tax Management

-          Tata group case analysis

This blogger would analyse corporate risk management as Tata Group an example.

Theory introduction:

Risk Management

In the world of finance, risk management refers to the practice of identifying potential risks in advance, analysing them and taking precautionary steps to reduce/curb the risk.

Generally, interest rate and exchange rate risk management are considered significantly for international operating corporations.

There are two main risks (basis risk and gap exposure) are included in interest rate risk as well as 3 main risks (transaction risk, translation risk and economic risk) are included in exchange rate risk.

Basis risk

Basis risk is related to two floating rates which are not determined using the same basis.

Transaction Exposure

Transaction exposure is the risk that the amount of domestic currency either paid or received in these foreign currency transactions may change due to movements in the exchange rate.

Translation Exposure

Translation exposure refers to the possibility that, as a result of the translation of overseas assets, liabilities and profits into the domestic currency, the holding company may experience a loss or a gain due to exchange rate movements.




Economic Exposures

Economic exposure refers to the risk of long-term movements in exchange rates undermining the international competitiveness of a company or reducing the net present value of its business operations.

It should be mentioned that, economic risk is a more general type of exchange rate risk than transaction and translation risk.



Tata Group Case Analysis:

Related Corporations brief introduction

Tata group:

Jaguar Land Rover:

Tata group bought Jaguar Land Rover Case:

 As an Indian based corporation, Tata group acquiried Jaguar Land Rover (a British corporation) is belong to international acquisition. With different culture and national location of two corporations, Tata group would get exchange risk. For example, Tata group would get some transaction risk during the acquisition payment period. After acquisition, as the parent corporation of Jaguar Land Rover, Tata group would get translation exposure when recieving and chekcing the financial statement of Jaguar Land Rover every year. Moreover, as exchange floating frequently by some global events, Tata group would get economic exposures and should justify Jaguar Land Rover predicting profit under global trend consideration. For example, as America reducing quantitative easing policy, both India and UK would have effect on that. However, as the decreasing of quantitative easing leading emerging economy capital price decreasing, the emerging country India would get huge negative exchange impact from quantitative easing policy draw back and Indian Rupee rapidly and extremely depreciation. While UK does not get much impact on that policy for its better capital structure and national economy revive. Then, Indian Rupee is depreciating by comparing British Pound in this period. Therefore, for Tata Group, it is better to consider the influence of quantitative easing policy by comparing with two countries specific influence and deduct the predict of Jaguar Land Rover, such as Jaguar Land Rover may have better gainning than Tata Group other corporations in India. Except considering global events influence, Tata Group could make specific exchange strategy to control the risk.





Bibliography:

The Economic Times,. (n.d.). Risk Management Definition | Risk Management Meaning - The Economic Times. Retrieved 20 February 2014, from http://economictimes.indiatimes.com/definition/risk-management

Watson, D., & Head, A. (2007). Corporate finance (1st ed.). New York, NY: Financial Times/Prentice Hall.

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Raising Finance for Multinational Enterprise, Collaborative Ventures & Foreign Subsidiaries

Blog 1： Raising Finance for Multinational Enterprises, Collaborative Ventures & Foreign Subsidiaries

Raising money is a important thing for the corporations to support business operations. There are two main methos for current corporations raising finance, such as, equity finance and debt finance. This blogger would analyse and compare both financing method under some specific examples.

1. Definition: Equity Finance & Debt Finance

Equity finance: An efficient way for SMEs to finance high-risk investments because it allows investors to share more fully in the rewards of a successful venture.

Debt finance: When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.

2. Advantages & disadvantages

2.1 Equity finance advantages: 

A. Usually there is no obligation to pay dividens.

B. The capital does not have to be rapaid.

2.2 Equity finance disadvantages:

A. High cost: Equity finance cost of capital would normally higher than debt finance cost of capital. First of all, some extra direct cost would have in equity finance such as advice cost, the legal, accounting and prospectus costs. Secondly, to satisfy shareholder, corporation would have cost on returning. 

B. Loss of control: Under equity finance method, shareholder have some rights to influence corporation decisions.

C. Dividends cannot be used to reduce taxable profit: Dividens are paid out of after-tax earnings, whereas interest payments on loans are tax deductible.

2.3 Debt finance advantages:

Debt financing allows you to have control of your own destiny regarding your business. You do not have investors or partners to answer to and you can make all the decisions. You own all the profit you make.

If you finance your business using debt, the interest you repay on your loan is tax-deductible. This means that it shields part of your business income from taxes and lowers your tax liability every year. Your interest is usually based on the prime interest rate.

The lender(s) from whom you borrow money do not share in your profits. All you have to do is make your loan payments in a timely manner.

You can apply for a Small Business Administration loan that has more favorable terms for small businesses than traditional commercial bank loans.

2.4 Debt finance disadvantages:

The disadvantages of borrowing money for a small business may be great. You may have large loan payments at precisely the time you need funds for start-up costs. If you don't make loan payments on time to credit cards or commercial banks, you can ruin your credit rating and make borrowing in the future difficult or impossible. If you don't make your loan payments on time to family and friends, you can strain those relationships.

3. Comparison with fact examples

(Businessweek, n.d.)

According to Gofunding, the corporations like Neovasc which hold high profitability would prefer choose equity financing to raising money for their business. As a corporation which formed in 2008 (Neovasc, 2012), Neovasc is a newly and small corporation which depends on equity financing in its early stages of development (Gofunding, n.d.).

(Amec, n.d.)

Although, debt financing is usually be used in small pattern corporations, some big corporations could possible using debt financing to raising money in some specific situations. According to BBC (2014), some corporations like Amec would use debt financing to raise funds to fill up the insufficient currency payment. As the characteristics in less risks and transaction fees of debt financing, corporation usually use debt financing in this situation rather than equity financing. Moreover, according to Gofunding (n.d.), the corporations with steady profitability would use debt financing. From above chart, the general stable increasing of Amec shows enough evidence to prove that.

After comparing with two types of financing methods in specific examples, it could be concluded that small and newly corporations with high profitability would prefer equity financing, while stable big corporations prefer debt financing.

Resource related:

Amec.com (n.d.). Amec | financial reports. [online] Retrieved from: http://www.amec.com/media/financial_reports/financial_reports.htm [Accessed: 22 Feb 2014].

BBC News (2014). Amec offers £1.9bn for swiss firm. [online] Retrieved from: http://www.bbc.co.uk/news/business-25711210 [Accessed: 21 Feb 2014].

Businessweek.com (2014). Neovasc inc (nvc:venture): financial statements - businessweek. [online] Retrieved from: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=NVC:CN [Accessed: 28 Mar 2014].

Go4funding.com (n.d.). Choosing between debt and equity financing. [online] Retrieved from: https://www.go4funding.com/Articles/Small-Business/Choosing-Between-Debt-And-Equity-Financing.aspx [Accessed: 22 Apr 2014].

Marketwire (2014). Neovasc inc. closes c$25 million bought deal equity financing. [online] Retrieved from: http://www.marketwired.com/press-release/neovasc-inc-closes-c25-million-bought-deal-equity-financing-tsx-venture-nvc-1892625.htm [Accessed: 28 Mar 2014].

Neovasc Inc. (2012). Canadian biotech firm specializing in cardiovascular devices. [online] Retrieved from: http://www.neovasc.com/heart-valve-bovine-tissue-tmvi-coronary-sinus-reduction/about-neovasc-canadian-biotech/ [Accessed: 28 Mar 2014].