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Economics & Finance

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published: 29 Mar 2017

  • Topic: Economics & Finance
  • Region: Global

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Abstract:
The world is currently seeing a rise of populist leaders in both Europe and the US (Donald Trump), as well as in some emerging markets. Is this linked to the rise in inequality over time, whereby many of the gains have accrued to the richest 1%? This short case provides the background and statistics underpinning the rise in income and wealth inequality in advanced economies, and sets up a discussion on why we should care about inequality. Subsequently, it explores the link between inequality and equality of opportunity, political instability, financial crises and economic growth. It closes by highlighting where businesses are truly a force for good and the circumstances in which a greater focus on distribution is warranted.

Pedagogical Objectives:
The objective is to facilitate an understanding of the interlinked issues of politics, economics, distribution and growth. The case highlights the rise in income inequality and whether this is linked to political shifts in Europe and the US. It facilitates understanding of when and where inequality matters, the consequences of rising inequality, and the circumstances where business leaders must pay more attention to distributional aspects.

Keywords:
Inequality, Income Distribution, Gini Coefficient, Populism, Donald Trump, Inequality and Political Instability, Inequality and Financial Crises

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published: 29 Mar 2017

  • Topic: Economics & Finance
  • Region: Global

Show details ...

Abstract:
The world is currently seeing a rise of populist leaders in both Europe and the US (Donald Trump), as well as in some emerging markets. Is this linked to the rise in inequality over time, whereby many of the gains have accrued to the richest 1%? This short case provides the background and statistics underpinning the rise in income and wealth inequality in advanced economies, and sets up a discussion on why we should care about inequality. Subsequently, it explores the link between inequality and equality of opportunity, political instability, financial crises and economic growth. It closes by highlighting where businesses are truly a force for good and the circumstances in which a greater focus on distribution is warranted.

Pedagogical Objectives:
The objective is to facilitate an understanding of the interlinked issues of politics, economics, distribution and growth. The case highlights the rise in income inequality and whether this is linked to political shifts in Europe and the US. It facilitates understanding of when and where inequality matters, the consequences of rising inequality, and the circumstances where business leaders must pay more attention to distributional aspects.

Keywords:
Inequality, Income Distribution, Gini Coefficient, Populism, Donald Trump, Inequality and Political Instability, Inequality and Financial Crises

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published: 27 Feb 2017

  • Topic: Economics & Finance
  • Industry: Education, paper, research
  • Region: Global

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Abstract:
The case focuses on the main issues faced by two US-listed Chinese companies – Orient Paper (NYSE MKT: ONP) and New Oriental Education and Technology Group (NYSE: EDU) – when they were attacked by Muddy Waters, LLC. Interestingly, the seemingly similar responses of the two “Orientals” resulted in widely disparate outcomes, offering lessons to emerging market firms eager to embrace the global capital markets. The case aims to help students understand the mechanism of short selling in the context of “bear” attacks, and expose the problems that attract short sellers’ attention, as well as the actions companies can take to deal with them. It also explains the normative role that short selling plays in the market: to discipline corporate behaviour and improve market efficiency.

Pedagogical Objectives:
The case is suited for any (or all) of the following purposes: 1. To introduce the process of short selling and the parties involved. 2. To identify the common problems that tend to attract “bear” attacks, from the experience of the two Orientals and other examples. Four categories are described in detail. 3. To explore actions that companies can take in dealing with short selling. A bear attack is not necessarily bad for a company; a plunge in the stock price in the short term creates an opportunity for good companies (as well as top management) to legally buy back shares at a lower price. 4. To understand the normative implications of short selling as part of ‘the invisible hand of the market’ to discipline corporate incentives.

Keywords:
Short Selling, ‘bear’ Attacks, Overseas Listing, Global Capital Market, Chinese Companies Overseas Ipo, Corporate Transparency, Invisible Hand, Market Efficiency, Responses to Short Selling, Countering ‘bear’ Attacks

published: 30 Jan 2017

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Abstract:
In 2011, Ingersoll-Rand (IR) decided to divest its refrigeration equipment subsidiary, Hussmann International. However, the routine auction process for the non-core asset went awry when both Hussmann’s performance and external finance markets weakened significantly during the due diligence period. IR’s agent, JP Morgan, sought interest from potential buyers and focused on a few leading buy-out firms that submitted bids. After not seeing eye-to-eye with the initial auction winner, Ingersoll-Rand engaged exclusively with a lower bidder, the private equity firm Clayton, Dubilier & Rice. The challenge for CD&R is to develop a deal structure that can meet both parties’ needs, offering enough value to Ingersoll-Rand to keep them from walking away, yet taking into account the increased riskiness of Hussmann’s recent performance to justify CD&R’s valuation. The student takes the perspective of CD&R.

Pedagogical Objectives:
This case aims to build students’ awareness of the challenging PE landscape and shows how one PE firm has found new ways to source and structure deals in order to maintain attractive returns in an overpriced acquisition atmosphere. Successful strategies to outperform in an overheated market are rare, but leading firms find ways to gain sourcing advantage and/or utilize skills to improve underperforming businesses to drive them to the top return quartile. The case examines both return strategies with an inside look at Clayton, Dubilier & Rice’s “recipe for bubbles”.

Keywords:
Private Equity, Auction, Auction, Carve Out, Structuring, Earnings Surprise, Management Change, Growth Capital, Corporate Carve Out, Restructuring, Due Diligence, Divestiture, Operational Improvements, Turnarounds, Gpei, Gpei-Case

published: 15 Dec 2016

  • Topic: Economics & Finance
  • Industry: Technology
  • Region: Europe

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Abstract:
On 30 August 2016, Margrethe Vestager, the European Commissioner for Competition, ordered Ireland to recover €13 billion in illegal state aid that the state had granted Apple over a decade from 2003. In allowing Apple to pay close to zero in taxes, she ruled, Ireland had given the foreign company a selective advantage over other businesses paying the regular corporate tax rate of 12.5%. Tim Cook, CEO of Apple, and Enda Kenny, the Irish Prime Minister, appealed the ruling, a process that is still ongoing. The case explores this event from five analytical pillars: 1) the role of Ireland’s low corporate tax rate in attracting FDI; 2) Apple’s decision to allocate its earnings to a paper company in Ireland with no physical presence in the country; 3) the repatriation of foreign earnings to the United States; 4) the transfer payments that Apple makes to the US to pay for R&D; 5) the Commissioner’s decision to impose a retroactive tax penalty on a foreign company that acted in accordance with the tax arrangements granted by its host country.

Pedagogical Objectives:
The case is designed to encourage students to think about the role of tax policy from the perspective of the company. With the rise of global companies such as Apple whose products are sold all over the world, the question of where they should be taxed becomes a particularly controversial issue. Students will be asked to reflect on tax policy around the following five points: 1) as a national competitive advantage in attracting FDI; 2) on shrewd corporate accounting that renders taxable income to nearly zero sums; 3) on powerful tax disincentives for the repatriation of earnings approaching two trillion dollars to the United States, 4) the political rational behind the current corporate tax principle that states taxes for innovative companies like Apple should be paid in the source country where R&D is carried out; 5) and that supranational entities such as the European Commission should take preventive measures and not corrective punitive measures in dealing with foreign countries who have created thousands of jobs in a particularly vulnerable host country such as Ireland.

Keywords:
Margrethe Vestager, Public Finance, Corporate Tax, Repatriation of Earnings, State Aid, Tax Haven, Ccctb, Apple, European Commission for Competition, Transfer Payments, Enda Kenny, Tax Minimization, United States, International Taxation

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published: 28 Oct 2016

  • Topic: Economics & Finance
  • Industry: Agriculture
  • Region: Asia

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Abstract:
e-Choupal, an initiative of ITC Ltd. launched in 2000, endeavours to place computers with internet connectivity in villages in rural India. ‘Choupal’ is Hindi for ‘gathering place’: the computer facility serves to bring villagers together for exchange of information and as an e-commerce hub. Although the primary objective of the project is to bring efficiency to ITC’s procurement process, an important byproduct is the empowerment of farmers in areas where e-choupals are established.

Pedagogical Objectives:
. Start by comparing the state of Indian agriculture before and after implementing this initiative. . Explore the value chain of the agriculture sector in India, and where the redundancies are. . Understand how the e-Choupal initiative benefits farmers as well as ITC . Debate whether ITC could leverage on e-Choupal’s success to enter fields such as improving education and healthcare in rural India – is the model replicable in other social impact settings?

Keywords:
E-Choupal, Agriculture, Technology, Itc, India, Revolutionizing, Farming, Exchange of Information, Supply Chain, Farmer, Computer

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published: 28 Oct 2016

  • Topic: Economics & Finance
  • Industry: Agriculture
  • Region: Asia

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Abstract:
e-Choupal, an initiative of ITC Ltd. launched in 2000, endeavours to place computers with internet connectivity in villages in rural India. ‘Choupal’ is Hindi for ‘gathering place’: the computer facility serves to bring villagers together for exchange of information and as an e-commerce hub. Although the primary objective of the project is to bring efficiency to ITC’s procurement process, an important byproduct is the empowerment of farmers in areas where e-choupals are established.

Pedagogical Objectives:
. Start by comparing the state of Indian agriculture before and after implementing this initiative. . Explore the value chain of the agriculture sector in India, and where the redundancies are. . Understand how the e-Choupal initiative benefits farmers as well as ITC . Debate whether ITC could leverage on e-Choupal’s success to enter fields such as improving education and healthcare in rural India – is the model replicable in other social impact settings?

Keywords:
E-Choupal, Agriculture, Technology, Itc, India, Revolutionizing, Farming, Exchange of Information, Supply Chain, Farmer, Computer

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published: 23 Sep 2016

  • Topic: Economics & Finance
  • Industry: Banking
  • Region: Global

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Abstract:
The case discusses the financial strategy of ING Direct, a telephone/internet retail bank that has been growing rapidly in eight countries. It presents both the deposit pricing strategy, and the asset allocation of the bank.

Pedagogical Objectives:
The case study triggers a discussion about interest rate risk, economic capital allocation and RAROC in banking.

Keywords:
Banking, Internet Banking, Interest Rate Risk, Bank Regulation, Economic Capital, Raroc

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published: 23 Sep 2016

  • Topic: Economics & Finance
  • Industry: Bank
  • Region: Europe

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Abstract:
The case presents the strategy of the British bank Lloyds TSB (called today Lloyds Banking Group) over the years 1983-2007. A long time span allows to evaluate the financial results of a long-term strategy.

Pedagogical Objectives:
The objectives of the case is twofold: discuss the trade-off between short-term profit and long-term value maximization, and the trade-off between a focus and a diversified strategy.

Keywords:
Bank Strategy, Diversification, Bank Valuation, Corporate Governance, Value Creation, Strategy and Implementation

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published: 22 Jul 2016

  • Topic: Economics & Finance
  • Industry: Transportation infrastructure
  • Region: South America

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Abstract:
The case involves tapping global capital markets for an important revenue-driven project in a developing country. It addresses key issues in project and infrastructure finance in the context of a major Peruvian toll road project.

Pedagogical Objectives:
Create an understanding of how major infrastructure projects can be financed without government funding or recourse to the public sector by using project finance structures even in developing countries that have variable credit histories. Illustrate how foreign direct investment among developing countries can effectively conceive, execute and finance the key economic infrastructure needed for sustainable growth.

Keywords:
Infrastructure, Project Finance, Capital Markets, Project Risk, International Portfolio Efficiency, Build-Operate-Transfer, Country Risk, Non-Recourse Financing, Road/highway Construction

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