Socially Responsible Investment: Is it profitable?

Socially Responsible Investment (SRI) is a special investment philosophy that chooses to invest in enterprises not only concerned about its financial results for the performance, while concerned about the fulfillment of corporate social responsibility (Eurosif, 2010). And the traditional stock selection model, that can increase corporate environmental protection, social morality and public interest considerations, a more comprehensive study of corporate investment. In addition, that the SR of investors and also to apply their corporate identity of the shareholders, through active shareholder activism, to promote good corporate social responsibility (CSR) to fulfil. Regarding to Strasser (2011) explained that no universal definition for SRI. What drives socially responsible investment?

In recent years, with the deepening of economic globalization, people began to concern about global climate, environmental and other issues are increasing. CSR has become an important topic of extensive domestic and international concern. And SRI is it profitable? It is a combination of investment decisions and the economic, social, environmental unity of an investment mode. Investors not only be interested in the traditional return on the money, but also take into account social justice, economic development, world peace and environmental protection, so as to achieve sustainable development. Furthermore, as Strasser (2011) shows that in 2006 the United Nations launched the Principles for Responsible Investment (PRI), which is meant to be the first global benchmark for responsible investments.

Recent events like for instance the financial crisis, the nuclear catastrophe in Japan, global warming or the BP oil catastrophe might have been important factors for the large growth within the SRI industry. The development of SRI over recent years and that highlights the prospects for an increasingly strong connection with the practice of CSR (Sparkes and Cowton, 2004).

This can be reflected by the Clark (2012) reported that the chancellor has unsettled renewable energy investors by unequivocally backing a central role for gas in Britain’s energy mix. And according to Mr Osborne has said gas is cheap, has much less carbon than coal and will be the largest single source of our electricity in the coming years. Also unveiled £3bn of tax allowances to boost North Sea oil and gas investment. Moreover, he has comments come amid debate over whether a so-called “golden age of gas” will provide so much cheap and abundant natural gas that it will lock in years of investment in the fossil fuel at the expense of renewable energy sources, such as wind and solar. In addition, Mr Osborne remarked that renewable energy will play a crucial part in Britain’s energy mix – but I will always be alert to the costs we are asking families and businesses to bear. Environmentally sustainable has to be fiscally sustainable too (Clark, 2012).

SRI is a special kind of investment approach, and to fulfill their SR by not asking the enterprise to solve all social problems, but to pay attention to the most relevant to business operations activities with significant or potential impact on substantive issues, stakeholders, and will fulfill their social responsibility and enterprise production and management together. CSR must also adapt to the basic national conditions and the actual business of the national economic and social development, to understand and grasp at a higher level and broader scope.

The formation of the credit crunch and a significant impact

The credit crunch means the financial institutions to improve lending standards for business loans, and the loans higher than the level of market interest rate conditions, even reluctant to issue loans, that is resulting in the decline in credit growth, and the social reproduction of capital needs are not met. Lead to the causes of the credit crunch, including external and internal reasons.

The caused by the direct cause of the U.S. subprime mortgage market turmoil, that U.S. interest rates rise and the housing market continued to decline. The subprime mortgage refers to a number of lending institutions provided loans to poor credit rating and income borrowers. However, due to rising interest rates, leading to increased repayment pressure, would have bad credit users feel the pressure of repayment, the event of default may impact on the recovery of bank loans crisis. And the credit crunch affects only Banks?

It is clear that bankruptcy due to subprime mortgage lending institutions, investment funds forced to shut down, stock market volatility caused by the storm. It resulted in major financial markets around looming lack of liquidity crisis. Moreover, the credit crunch is an American Problem? U.S. "subprime crisis" is gradually emerging from the spring of 2006, that sweeping the U.S., EU and Japan, the world's major financial markets in August 2007.

In addition, the credit crunch is a general phenomenon, rather than individual phenomenon. The small businesses are unaffected by the credit crunch? Regarding to Ding et al, (2004) also explained that credit crunch is widespread, and its negative impact particularly affects small banks and enterprises.

As the credit crunch, the funds obtained through the banking system tend to decreased, that more impact on SMEs (small and medium enterprises) by credit constraints. This is because the low level of SMEs credit, and the lack of alternative sources of financing other than banks. The SMEs credit rating is lower than the generally large enterprises, that financial institutions to improve lending standards to SMEs excluded. On other hand, compared with large enterprises, the SMEs through less equity financing or bonds issued to obtain funds. Once formed of the credit crunch, the real economy sector that lack of funds may cause economic activity cyclical "break". In particular, the continuing credit crunch will cause severe economic recession.

At present, according to Wigglesworth (2012) reported that “largest companies are mostly in fine fettle after cutting back on borrowing, trimming workforces and hoarding cash since the financial crisis. Many financial metrics of corporate health are at their strongest levels in decades.” But smaller companies in many countries still face a testing decade, as many banks in developed markets seek to shrink their loan books due to market pressures and regulatory changes, even as a wall of loan and bond repayments looms (Wigglesworth, 2012).

In addition, a recent BBC new (2012) pointed out a real debt of UK, which reflects why the financial crisis, and why has the recovery been so slow?  As this question, that many people have may blame the banks, which are banks made ​​mistakes. It is truth?

As Broadbent a member of the Monetary Policy Committee has argued that really fault tie to household for running up so much debt. And his also explained debt is indeed a large part of what caused the crisis, and a large part of the explanation for Britain's historically feeble recovery (BBC news 2012). There are can be seen in the right chart, that about the massive increase in UK household debt in the years before the bust, that it is the slow process of unwinding Britain's massive debts - public and private.

Furthermore, Broadbent has provide the another chart shows how much slower this recovery has been, in Britain and other parts of Europe than the long-term average, which includes other times when the government has tightened fiscal policy early on. As he points out, the chart showing the rise of household debt is usually accompanied by another one, adding all the debts of the UK private sector together, showing how Britain is the "most indebted country in the world" (BBC news 2012).


On other hand, There are by common view of it's true that losses in the UK financial system played a big part in the UK's crisis. But someone is disagreed with Broadbent, and argued that Households, as a group, have a lot of debt. But they also have a lot of assets - in fact, a lot more. (See right chart). And Households' total wealth, including housing, was worth eight-time annual disposable income at the end of 2010. That's above the 25-year average, despite everything that happened in 2008-10 (BBC news 2012). There are increase in UK households debt will bring any effect on the Britain's economic crisis recovery?


 

Mergers & Acquisitions （M&A）: Why merge and what effects can it bring?

Merger refers to two or more independent enterprises, the company merged to form a company, usually an advantage of the company to absorb one or more companies; acquisition refers to one or more companies in the securities market with cash, bonds or stock to buy the stock and assets of another company in order to obtain control of the company, and the company's legal status does not disappear; acquisition of only a way of corporate mergers, in particular the merger of the stock market publicly listed company is the majority of the way in the most case. Therefore, corporate mergers and business acquisitions are often collectively referred to as mergers and acquisitions (M & A). However, M & A are a way of business expansion and growth, but also an alternative method of invested capital through internal or organic growth. Which lead to enhance the competitive advantage and achieve business objectives of the behavior?

What is the motive for M&A? The firm decide to merger with other firms for a variety of reasons, regarding to Arnold (2008) has identifies four classes of merger motives. There are including, synergy, bargain buying, managerial motives and third party motives.

Looking at the recent case, as McLannahan (2012) reported the Tokyo Stock Exchange and the Osaka Securities Exchange is merging into a single entity by 2013. As TSE CEO said “The Japanese market needs to be of a certain size and offer unique services in order not to be left behind by global developments.” In theory at least, the merged company, should be a more attractive place to do business than the TSE or OSE in isolation. Moreover, Tokyo will acquire a majority of the Osaka bourse, form a holding company, maintain the OSE’s public listing and create four business units: cash equity market, futures trading, regulatory and clearing. That will give it both scale and solidity.

In the intense market competition, the company has only the continuous development in order to survival, that usually enterprises either through internal investment access to development, also can be obtained through M&A, both compared to M & A approach more efficient, and its main in the following areas:

First, M&A can save time. In very short time to expand business scale to enhance competitiveness. The management and development of enterprises in a dynamic environment, at the same time, that competitors are seeking development, therefore, must grasp the opportunity in the development process to obtain a favorable position as far as possible before competitors.

Second, M&A can reduce the risk of barriers to entry and business development. Enterprises to enter a new market will encounter various barriers, including: capital, technology, channels, customer experience, these barriers not only increases the difficulty of the enterprise to enter the market, but also increases the cost of entry and risk.

In addition, M&A can contribute to the development of transnational corporate. At present, the pattern of global competition has been basically formed, cross-border development has become a new trend of business enterprises to enter new foreign markets, is facing more difficulties in approaching new markets such as domestic. Include: enterprise management mode, the difference of the operating environment, government regulations and restrictions. M&A an enterprise of the local existing entry, not only can accelerate the speed of entry, and can use existing enterprise operational systems, business conditions, management of resources, so that the smooth development of enterprises in the next stage.

In the corporate M & A, that has huge sums of money paid to the target company, therefore, how to raise these funds to become a major issue in the implementation process of mergers and acquisitions. According to Arnold (2008) shows that some methods of financing mergers, such as cash, shares and other types of finance. Which method of financing to choose, and the impact to shareholder value?

Firstly, using cash mergers is that its simplicity and preciseness give a greater chance of success. One of the advantages of using cash for payment is that the acquirer’s shareholders retain the same level of control over their company. But target shareholders have not suddenly taken possession of a proportion of the acquiring firm's voting rights. Cash has the advantage for target shareholders that is in addition to being more certain in its value Arnold, 2008).

On other hand, Arnold (2008) also explained shares financing merger has some advantages, as target shareholder of receiving shares in the acquirer rather that cash, the capital gains tax can be postponed because the investment gain is not realised. Furthermore, they maintain an interest in the combined entity. To the acquirer, an advantage of offering shares is that there is no immediate outflow of cash. However, there are benefits in the period of M&A. Whether the acquiring company or target companies that the shareholders often play a decisive role in the process of M&A.

The impact of foreign direct investment (FDI) on the current business world

Foreign direct investment (FDI) has grown dramatically as a major form of international capital transfer over the past decade (Froot, 1993). According to World Investment Report (2008) shows

“In 2006, developing countries attracted $380 billion in FDI - more than ever before. While two thirds of these flows went to rapidly growing markets in Asia, virtually all developing regions participated in the increase.”

In addition, there have been concerns that a slowdown in the US coupled with the ongoing debt crisis in Europe may hurt global growth and dent consumer demand (BBC news, 2011). In the same time, as World Investment Report (2008) claimed in 2007, the exchange rates of the major currencies of developed countries continued their trend that started at the beginning of this decade. Moreover, at the macroeconomic level, the economies of developed countries could be affected by the slowdown of the United States economy and its subsequent impact on the most important financial centres, affecting bank liquidity and credit supply (World Investment Report, 2008).

The foreign enterprises to select the location of manufacturing subsidiaries, in generally, that consider the size of the market as a very important factor. The reason is close to the consumer and factor markets, thereby reducing transportation costs, to keep abreast of changes in market demand and obtain agglomeration economies of scale.

In recently, there is an example can be found Apple is the world's more valuable company is pitted against an almost unknown firm. According to BBC news (2012) reported the Apple's stock market value closed above $500bn (£314bn), cementing its position as the world's most valuable company. Apple has such achievements, which is totally inseparable from its successful strategic management. And there are any relationships between in Apple direct investment in China?

Apple direct investment in China immediate goal is to have a lot of the consumer market in China, and China has strong human resources and technology, these will bring huge benefits. As result, Moyer (2012) pointed out the Apple analysts had estimated that in the U.S, Apple would take the company as long as nine months to find the 8,700 industrial engineers it would need to oversee workers assembling the iPhone. In China it wound up taking 15 days. However, obviously it can be seen FDI bring many benefits for multinational itself, and it can maintain a competitive advantage. The contrary, there are any benefit for host country?

In addition, FDI is play vital role in the Chinese economy growth. There are Including multinational companies will bring important source of funds, and the higher the proportion of exports of foreign-invested enterprises, which will increase exports and improve the export structure. In addition, the increase in output and employment, can be drawn, FDI on the positive role of China's economic development is also reflected in the promotion of institutional change and develop talent.

At the same time, FDI has continued a massive increase, in the backdrop of economic globalization and liberalization of international investment trends. In general, a state is more favorable than in other areas of foreign investment policy is an important factor affecting the investment environment, attract FDI plays an important role. Does China to continue to loosen control policy to attract more investors?

While Chinese economy has grown dramatically over the past three decades, its financial markets have remained mostly closed off from the rest of the world. Rabinovitch (2012) shows China should accelerate the loosening of capital controls, its central bank said, and outlining the path to a freely tradable currency and more open capital markets. Rabinovitch and Cookson (2012) also explained China outlines plan to loosen capital controls, that foreign investors will be much bigger players in Chinese stock and bond markets. Furthermore, Chinese central bank is the most detailed public proposal yet for loosening the government’s strict capital controls. If implemented as envisaged, the global economic landscape will undergo sweeping changes this decade (Rabinovitch and Cookson, 2012). Despite FDI has a positive role in the host country's economy, but it also has the negative impact cannot be ignored?

Supplementary video: China's paradox of prosperity. Available at: http://video.ft.com/v/1467534811001 (Assessed 2 March 2012)