Corporate Capital Structure Theories And Modern Research Work Finance Essay - Free Essay Example

Sample details Pages: 20 Words: 6114 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Cause and effect essay Did you like this example? Methodology: Regression model is used to analyze the data taken from Pakistani firms in sugar sector, listed on Karachi Stock Exchange, during the period 2001-2008. Keywords: Static trade-off theory, Pecking order theory, Agency cost theory, leverage ratio, listed firms, corporate capital structure. 1. Introduction Don’t waste time! Our writers will create an original "Corporate Capital Structure Theories And Modern Research Work Finance Essay" essay for you Create order In the opening chapter, the background, problem discussion and purpose of the study are presented. The chapter ends with targeted group and limitation of study. 1.1 Background and problem discussion Capital structure is one of the most prolific domains of research in corporate finance. Research is spinning around a few theoretical models of capital structure since over than forty years but could not be able to provide the conclusive assistance to managers and practitioners for choosing between debt and equity in financial decisions. An important question that companies face in need of new finance is whether to raise debt or equity. A number of theories have been proposed to explain the variation in debt ratios across firms. The theories suggest that firms select capital structures depending on attributes that determine the various costs and benefits associated with debt and equity financing. In spite of the continuing theoretical debate on capital structure, there is relatively little empirical evidence on how companies actually select between financing instruments at a given point in time. The problem of capital structure choice has been heavily discussed by international researchers for the last few decades that: What are the determinants of capital structure choice? How do firms choose their capital structures? Given the level of total capital necessary to support a companys activities, is there a way of dividing up that capital into debt and equity that maximizes current firms value? And, if so, what are the critical factors in setting the leverage ratios for a given company? Modigliani and Millers (MM) theory (1958) is considered as fundamental corporate structure model in the modern corporate finance. The theory ascertained the irrelevance of capital structure to firms value in perfect markets, without taxes and transaction costs. Following on the this perfect classification of market, most subsequent research focused to demonstrate that a firms capital structure decision does consider corporate and personal taxes, agency costs, bankruptcy cost, and other frictions. These aspects of corporate environment are referred as determinants of capital structure. Main research in corporate structure is focused on following two competitive theories: The first one is the traditional static trade-off theory, which derives form the Modigliani and Millers (1963) hypothesis of capital structure irrelevance and suggests that firms choose their optimal capital structures by trading off the benefits and costs of debt and equity. The main benefit of debt is tax deductibility of interest, which is balanced against bankruptcy costs (Kim 1978) and agency costs (Jensen and Meckling 1976; Myers 1977). It suggests the existence of a target optimal capital structure, which companies try to reach. . Contrary to the above is the pecking order theory, developed by Myers and Majluf (1984) which emphasis that there is no target level of leverage and companies use debt only when their internal funds are insufficient, firms instead of aiming towards a target-specific capital structure, choose a type of capital according to the following preference order: internal finance, debt, equity. Myers (1984) and Myers and Majluf (1984) by referring to the existence of information asymmetry between managers (insiders) and investors (outsiders), Insiders knowing more about the value of the firm than outsiders, avoid issuing equity when the shares of the company are undervalued. Being aware of the above fact, outsiders tend to interpret a share issue as conveying unfavourable information as to the value of the firm. As a result, managers are reluctant to raise equity capital because it is typically followed by a decrease in valuation of the companys assets. Therefore, retained earnings are the most preferred sources of funds and, if external financing is needed, a firm first seeks low risk debt. According to the pecking order theory, external equity financing is used as a last resort. Titman and Wessels (1988), as well as Rajan and Zingales (1996), whose works are referred to as the most important empirical studies in the field, find strong negative relationships between debt ratios and profitability. This evidence is consistent with the pecking order behaviour and inconsistent with the trade-off theory. One of the latest papers in support of the pecking order theory is by Shyam Sunder and Myers (1999), who explicitly compare it with the static trade-off theory using a panel of US firms. They conclude that, compared to the static trade-off model, the pecking order theory explains more of the variation in actual debt ratios. Even if companies in their sample had well-defined optimal debt ratios, their managers were not trying to obtain them. Many empirical studies have tried to explain the factors that affect on capital structures choice. One of the most renowned initial empirical studies is made by Rajan and Zingales (1996) and they explain the various institutional factors of firms capital structure in the leading industrial countries. Predominantly ongoing debate in corporate finance research sustains the significance of above discussed theories. Majority of research work is based on the facts taken from western and Americans non-financial firms, For example, Rajan and Zingales (1996) study is made on G-7 countries, Titman and Wessels (1988) studied U.S firms, Bevan and Danbolt (1999) studied U.K firms. There are few studies that cover non-financial firms from emerging economies. Although Booth et al (2001) have included Pakistan, in his empirical study of developing countries but Hijazi and Shah (2005) were the first to study determinants of firm-level capital structure in Pakistan. They discuss the all listed non-financial firms from period 1997 to 2001. But so far sugar sector of Pakistan has not been analyzed independently. This report presents an empirical analysis of capital structure of sugar sector in Pakistan with most recent available data. This report attempts to extend the knowledge of capital structure and its determinants in Pakistani companies. The aim of this research is to analyze the determinants of capital structure of sugar sector of the Karachi stock exchange. A variety of variables that are potentially responsible for determining capital structure decisions in companies can be found in the literature. However in this study, the profitability and tangibility are tested as determinants of capital structure in sugar sector of Karachi stock exchange. 2. Literature Review The first paper on capital structure was written by Miller and Modigliani in (1958). They conceptually proved that the value of firm in not dependent upon the capital structure decision given that certain conditions are met. Because of the unrealistic assumptions in MM irrelevance theory, research on capital structure gave birth to other theories. 2.1 Theory of irrelevancy of capital structure Corporate finance theory bases on the Modigliani and Miller (1958) propositions that specify certain conditions under which various corporate financing decisions are irrelevant. The MM propositions provide a base for analysing how financing decisions can create and destroy the value for a corporation. Theory of irrelevancy was presented in an era when research was dominated by assumption that there is no interaction between the firms investment and financial decisions of the firm. Modigliani and Miller states that in a perfect competitive market the value of a firm depends on its operating income and level of business risk. Simply, value of firm does not relate to its capital structure. Financing and risk management choices will not affect firms value if the capital market is perfect. A perfect market has following traits: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ All investors are price takers. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ All market participants can borrow and lend at the risk free rate. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ There are no costs of bankruptcy. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Homogenous risk free classification of firms. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Neutral taxes ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Managers always maximize shareholders wealth. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Information symmetry In their paper, Miller and Modigliani (1958) showed that the value of the firm is independent of the capital structure it takes on (MM irrelevance). They argue that there would be arbitrage opportunities in the perfect capital market if the value of the firm depends on its capital structure. Furthermore, investor can neutralize any capital structure decision of the firms if both investor and firms can borrow at the same rate of interest. Though this theory is based on many unrealistic assumptions, yet it presents the basics theoretical background for advance research (Shah and Hijazi, 2005) The main result of Modigliani and Miller (1958) irrelevance theorem stated that, under certain conditions, the value of the firm is independent of its capital structure. They argued that a firms investment policy has an important effect on firms value, whereas the financing decision is secondary. The theorem was based on the following (explicit and implicit) assumptions; the firms manager is selfless, always acting in investors interests (no agency costs); information about the firm is symmetrically distributed between managers and investors; debt is risk-free. Modigliani and Miller also ignored the effects of corporate taxes. 2.2 The Trade-off Theory Myers (1984) segregated the contemporary opinion on capital structure into two theoretical currents. One of them is the Static Tradeoff Theory (STT), which enlightens that a firm go after a target debt-equity ratio and then behaves in accordance to that. The benefits and expenditures linked with the debt alternative sets this target ratio. These comprises of taxes, cost of bankruptcy as well as agency cost. Like interest expenses are tax-deductible payments, which reduce the tax liability therefore providing cash savings. As a result firms will use a greater level of debt to take the advantage of tax benefits if the tax rates are greater. If the firms incur losses, the tax benefit will weaken away. Thus if the operating earnings are sufficient to meet up the interest payments after that firms will get the benefit of tax deductibility of interest payments. Therefore tax rate and leverage have positive affiliation. The probability of default enhances as the level of debt increases from most favorable level of debt. If the firm leaves beyond this most favorable point, it is more possible that the firm will fail to pay on the repayment of the loan; as a result the control of the firm will be shift as of shareholders to bondholders, they will strive to get back their investments by liquidating the firm. As of this risk a firm may face two kinds of bankruptcy costs; including direct and indirect costs. Direct costs comprises of the administrative and legal expense of the bankruptcy system. Incase firm is large in size; these costs comprise only a small percentage to the firm. Though, for a small firm, fixed costs comprise a higher percentage and are measured as an active variable in choosing the level of debt. Indirect costs arise due to change in investment policies of the firm, if the firm forecast possible financial distress. To stay away from probable bankruptcy, the firm will decreases expendi tures on training and advertisements, research and development etc. Resulting, the customer starts to doubt the firms capability to sustain the similar level of quality in services and goods. This uncertainty appears in the form of a fall in sales and ultimately results in a fall of the firms price of the market share. Modigliani and Miller (1963) states that, firm can have 100% debt in its capital structure for receiving utmost benefit of tax shield, but in reality capital structure compose of entirely with debt is not possible. Consequently, Static Trade Off Theory suggests the limited amount of debt and proposes that the optimal leverage ratio of the firm is determined by the trade-off between tax shields with debt financing against higher bankruptcy cost. According to Static Trade Off Theory, optimal debt ratio varies from firm to firm. Firm having safe and tangible assets and plenty of taxable income have high debt ratio. Such firms will be in a position to provide collateral for debts and in case of default, tangible assets will be apprehended but still firm may be in a place to avoid bankruptcy. According to theory profitable firms take more benefit of the tax shield by debt financing because there is fewer chance for them to go bankrupt therefore profitable firms are capable to raise its debt ratio more than a less profitable firm. 2.3 Signaling Theory There is significant branch of literature centering on the firms financial behavior. This domain of research focuses information distribution as a determinant of corporate capital structure. Their research work can be split in to two distinct categories: one who claims that firm uses capital structure to signal private information to the uninformed agents in capital markets and second who asserts that capital structure that minimizes the problems of information asymmetry can lead the firm to invest sub optimally. Ross (1977), suggested that debt is taken as a means to highlight investors confidence in the company, that is if a company issues the debt it gives a indication to the markets that the firm is expecting positive cash flows in the upcoming time, as the principal and interest expenses on debt are a fixed contractual compulsion that a firm has to pay from its cash flows. Therefore the higher level of debt reveals the managers confidence in future cash flows. Accordingly firms in their efforts to enhance the worth of equity will use high debt in the capital formation. Another impact of the signaling factor is the dilemma of the under pricing of equity. Incase firm issues equity in spite of debt for financing its fresh projects; investors will take the signal negatively: while managers have better information about the firm as compare to investors, they may issue equity once it is overpriced. The effect of information upon the capital structure of a firm can be reflected by its past cumulative requirement for external finance. Myer and Majluf (1984) say that since the investors cant separate the information about the new projects from that of under or over valuation of the current stocks, the capital structure of the firm may help to prevent mis-pricing the equity. Following this argument, firm dont issue equity for financing new project rather they will first fulfill their needs of financing from internally generated funds then issue debt if further financing is required and finally issue equity as a last resort. This has been termed as Pecking Order Theory. In the Rose model, managers know the true distribution of firms returns, but investors do not, mangers benefit if firms securities are more highly valued by the market but are penalized if the firm goes bankrupt. Firms with higher value are predicted to issue more debt as a signal to investors in order to differentiate them from lower value firms. Further model shows positive relation between profitability, debt level, and bankruptcy probability. 2.4 Pecking order theory (POT) Pecking Order Theory (POT) explained by Myers and Majluf (1984) and Myers (1984) states that firms pursue a hierarchy of financial decisions while setting up its capital structure. At first, firms favor to finance their projects with the help of internal financing i.e. retained earnings. If they require external financing, first they go for a bank loan and then for public debt. As a last alternative, the firm will issue equity to finance its project. Therefore as per POT the profitable firms are opt to incur debt for new projects as they have the available internal funds for this project. Myers and Majluf (1984) explained firms are reluctant to issue equity as of asymmetric information between the management and the new stockholders. Myers and Majluf (1984) explain that investors generally perceive that managers use private information to issue risky securities when they are overpriced. This perception of investors leads to the underpricing of new equity issue. Sometimes this underpr icing is very severe and cause substantial loss to the existing shareholders. Because of this, firms will avoid issuing equity for financing new project; rather they will first fulfil their needs of financing from internally generated funds then issue debt if further financing is required and finally issue equity as a last resort. Myers (1977) proposed that firms acting to make best use of the interest of equity holders will be reluctant to issue equity as of the wealth transfer to debt holders, Myers and Majluf (1984) proposed firms are unwilling to issue equity because of an unfavorable selection problem. Rajan and Zingales (1995) explained the determinants of capital structure in their cross-sectional study and examined that at the level of the individual firm, gearing may be enlightened by four key determinants i.e., market-to-book, size, profitability and tangibility. Rajan and Zingales (1995) performed their analysis on the G-7 countries upon a firm-level sample as the results of their regression analysis somewhat vary across the countries; that appear to expose some reasonably strong conclusion. Rajan and Zingales (1995), as well as Titman and Wessels (1988), whose works are referred to as the most important empirical studies in the field, find strong negative relationships between debt ratios and profitability, this is also evidenced by Bevan and Danbolt (2002). This evidence is consistent with the pecking order behavior and inconsistent with the trade-off theory. Given, however, that the analysis is effectively performed as an estimation of a reduced form, such a result masks the underlying demand and supply interaction which is likely to be taking place. Although on the supply-side one would expect that more profitable firms would have better access to debt, the demand for debt may be negatively related to profits. The inability of lenders to distinguish between good and bad risks prevents them from charging variable interest rates dependent on the actual risk. In this event lenders are forced to increase the general cost of borrowing, which will tend to induce a problem of adverse selection as good risks are driven from the market by the high costs of borrowing. Due to this information asymmetry, companies will tend to prefer internal to external financing, where available. 2.5. Agency Theory Jensen and Meckling (1976) are most prominent figures in research of agency cost domain. Jensen and Meckling (1976) discover the probable conflict between managers and shareholders interests as of the managers share of less than 100 percent in the firm. In addition, acting as agents to shareholders, managers try to appropriate wealth away from bondholders to shareholders by taking more debt and investing in risky projects. The managers given role has many implications for the capital structure of a firm. They suggest that as manager possess less then 100% residual claims and it causes conflicts between shareholder and managers. Subsequent type of conflict between debtholder and shareholder can arise when issuance of debt gives more incentive to shareholder. More explicitly, debt investment is inclined towards shareholders, if an investment yields large return, well above the face value of debt, shareholders captures most of the gain. But if investment goes fail and firm approaches to bankruptcy, equityholder just skip away and debtholders bear the whole consequences. According to Jensen and Meckling, agency relationship is an agreement between two parties. One of them (agent) performs certain services on the behalf of other (principal). The problem of stirring an agent to behave as if he were maximizing the principals welfare is rather common. In this relationship both parties are utility maximizer, therefore there is always a chance that agent will not always performs its responsibilities to maximize the benefits of principal. Principal have to restrain this problem by fixing an appropriate level of incentives for agent and to monitor the agents actions (by incurring monitoring cost). In this relation principal incur certain cost, called agency cost, which can explain as the sum of following activities: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ The monitoring expenditures by the principal ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ The bonding expenditures by the agent ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ The residual loss. Principal incurs monitoring cost to limit the unexpected activities of agent. Bonding expense can be describe as in some conditions it will pay the agent to expend resources (bonding costs) to guarantee that he will not take certain actions which would harm the principal or to ensure that the principal will be compensated if he does take such actions. In some cases, even both parties incur the agency cost but still agents certain decision for profit maximization would not increase the welfare of agent. This loss is termed as residual lost and it can be defined as the dollar equivalent of the reduction in welfare experienced by the principal as a result of agents divergence from principals expectation is also a cost of the agency relationship and that is referred as the residual loss. To mitigate the agency problems, various methods have been suggested. Jensen and Meckling (1976) suggest either to increase the ownership of the managers in the firm in order to align the interest of mangers with that of the owners or increase the use of debt which will reduce the equity base and thus increase the percentage of equity owned by mangers. The use of debt increases the chances of bankruptcy and job loss that further motivate managers to use the organizational resources efficiently and reduce their consumption on perks. Jensen (1986) present free-cash flow hypothesis, Free cash flow refers to cash flow available after funding all projects with positive cash flows. Managers having less than 100% stake in business and their compensation tied to firms expansion may try to use the free cash flows sub-optimally and increase firm size resulting in greater compensation. Jensen (1986) propose that this problem can be somehow restricted by increasing the stake of managers in the c ompany or by rising debt in the capital structure, thus dropping the amount of free cash accessible to managers. Harris and Reviv (1990) gave one more reason of using debt in capital structure. They say that management will hide information from shareholders about the liquidation of the firm even if the liquidation will be in the best interest of shareholders because managers want the perpetuation of their service. They suggest that mangers have incentives to pursue strategies that reduce their employment risk. This conflict can be solved by increasing the use of debt financing since bondholders will take control of the firm in case of default as they are powered to do so by the debt indentures. Stulz (1990) said when shareholders cannot observe either the investing decisions of management or the cash flow position in the firm, they will use debt financing. Managers, to maintain credibility, will over-invest if it has extra cash and under-invest if it has limited cash. Stulz (1990) argued that to reduce the cost of underinvestment and overinvestment, the amount of free cash flow should be reduc ed to management by increasing debt financing. The bondholder expropriation hypothesis says that shareholders try to gain advantage at the cost of bondholders. If investment yields high returns, the extra or additional benefits go to shareholders and if the firm fails, the bondholders also sustain the loss. So bondholders share extra risks for no reward. Being agents to shareholders, management tries to invest even in projects that may not have good chances of viability. This phenomenon is termed as overinvestment problem. The losses sustained by shareholders because of this incentive are termed as asset substitution effect. On the other hand, the underinvestment problem refers to the tendency of managers to avoid safe net present value projects in which value of equity may decrease a little, however, increase in value of debt maybe high. This happens because management, being primarily responsible to shareholders, does not concern itself with the overall increase in value of the firm rather it tries to increase the value of equity only [Myers and Majluf (1984)]. Jenson and Meckling (1976) propose that optimal capital structure is reached by trading off the agency costs of debt against the benefits of debt. Dependent and Independent Variables This part is devoted to factors that company ought to take in consideration while deciding capital structure. In general, companies have three sources to raise funds for new investment: use retained earning, issue debt and issue equity. These three sources make the capital and ownership structure. There are certain restraints for utilization of these components of capital structure. Firms do not invest completely by retained earning, for maintaining current assets. Debt is considered as cheaper source, compared to equity issue and it provides tax shelter but access of debt plus with high interest rate leads to bankruptcy. Issue of equity direct changes the ownership structure and give no tax shelter. A firm is said to be unrevealed if it has no debt, while firm with debt liability is leveraged. Objective of this study is to determine factors that have impact on leverage of sugar sector of KSE listed companies. Leverage is dependent variable and this paper is taking two independent variables i.e. tangibility and profitability. Leverage Leverage indicates the proportion of assets financed by debt. The choice of the measure of corporate capital structure may be controversial, as lack of a univocal definition of capital structure led to emergence of a variety of factors used to measure it (kinga mazur 2007). Usually, different forms of debt ratio are used, the differences between the measures concern mainly two things. The first one relates to the nature of debt included, Some authors adopt a more inclusive measure of debt that is total debt, Others work only with long-term debt, Short-term measures are applied rarely (kinga mazur 2007). Additionally, many authors have reported that results achieved with the narrow and the broad concepts are either very similar or better with the use of the broader concept. According to Bevan and Danbolt (2002), focusing on longterm debt when analyzing firms which incorporate a larger percentage of short-term debt into their structure, will yield limited explanatory power. They argue that inclusion of trade credit has a substantial impact on explanatory variables. Fama and French (2002) raised some contradictions arising due to the use of two different debt shares. (Pecking Order and Static Tradeoff) theories, both apply to the debt book value, and there are uncertainties if the predictions may be comprehensive to the debt market value. Following a previous study on non-financial Pakistani listed firms by Shah Hijazi (2005) study uses the book value measure of leverage. The key benefit of debt is that the interest payments are tax-deductible and therefore provides cash savings. The tax shield benefits are not changed by the market value of the debt once it is issued, so the market value of the debt is inappropriate for this study. On the other side, the prime cost of borrowing is the increased probability of bankruptcy. If a firm go down in financial distress and face bankruptcy, at that time the relevant value of the debt is the book value of the debt not the market value of the debt (Shah Hijazi, 2005). Further consideration in choosing the suitable measure of leverage is to take sum debt or just long term debt as a percentage of total assets. despite the fact that capital structure theories believe long term debt as a proxy for financial leverage, shah and Hijazi (2004) employed the measure of total debt as in Pakistan firms have typically short-term financing as the average firm size is small which makes access to capital market hard in terms of cost and technical complexity (Shah and Hijazi 2004). The major resource of debt in Pakistan have been commercial banks, which do not promote long term loans, with approximately no reliance on market based debt until mid 1994 when government stimulated to eliminate the majority of the constraints amongst which one act was to revise company law to allow corporate entities to raise debt straight from the market in form of Term Finance Certificates. So corporate bond market has inadequate record and is in the process of development. This give s explanation why firms on standard in Pakistan have more short term financing than long term financing. Booth et al (1999) also determined in study on determinants of capital structure in developing countries together with Pakistan that the use of short term financing is privileged than long term financing in developing countries. Following Booth et al (2001), Rajan Zingales(1995) and Beven Danbolt (2002),this study calculate leverage (LEV) of firm as the ratio of total liabilities to total assets. Rationale behind using total debt rather than long term or short term debt is to avoid their contradictory relations with leverage. These inconsistent relations are shown by Myers (1984) investigation, positive association of short term debt with financial leverage and negative with long term debt. Independent Variables 1. Tangibility (TG) Assets structure is commonly suggested as a variable since fixed assets can serve as collateral. Greater collateral may alleviate the agency costs of debt (Jensen and Meckling 1976; Myers 1977). That is why, according to the static trade-off theory, there should be a positive relationship between fixed assets and debt. On the other hand, the pecking order theory predicts that firms holding more tangible assets will be less prone to asymmetric information problems and thus less likely to issue debt. This argument suggests a negative relationship. Results obtained for developed countries (Rajan and Zingales 1995; Titman and Wessels 1988) found positive relation between assets structure and debt ratios. According to Bevan and Danbolt (2002), the relationship between assets structure and debt depends on the measure of debt applied. They found assets structure to be positively correlated with long-term debt and negatively correlated with short-term debt elements. According to the static tradeoff approach (jensen and Meckling, 1976), firms with higher fixed assets ratios provide collateral for new loans, supporting debt. On the other hand, according to Pecking Order Theory as argued by Harris and Raviv (1991), firms with low levels of fixed assets would have more troubles of asymmetric information, making them issue more debt, as equity problems would only be probable by under pricing them. Alternatively, firms with higher levels of asset tangibility are normally larger firms that can issue equity at fair prices, so they do not require issuing debt to finance fresh investment. According to them, the anticipated relationship between asset tangibility and debt should then be negative. A firm with a huge sum of fixed assets can simply raise debt at cheaper charges because of the collateral worth of fixed assets. Companies with a higher tangible assets ratio have an advantage to have more loan because loans are presented to them at a comparatively cheaper rate. Therefore this study look forward to have a positive association between tangibility of assets and leverage. In this study tangibility of assets is calculated as the ratio of fixed assets to total assets. Profitability Profitability is a major point of differ among the Pecking Order and Static Tradeoff Theory. According to STT, the higher profitability of the firm provides more explanation to issue debt, as it reduces tax obligation. According to the trade-off hypothesis, firms would choose to have high levels of debt in order to obtain attractive tax shields. This would imply a positive relationship between profitability and debt. Jensen (1986) argues that cash-rich firms should acquire new debt to prevent managers from wasting free cash flows, which implies positive relationship for liquidity. On the other hand, the POT presupposes that larger earnings guide to the enhancement of the major resource firms select to cover their financial shortfall. Given the pecking order hypothesis firms tend to use internally generated funds first and than resort to external financing. This implies that profitable firms will have less amount of leverage [Myers and Majluf (1984)]. The majority of empirical evidence favours the view that profitability and liquidity are negatively correlated with debt ratios (Titman and Wesssels 1988; Rajan and Zingales 1995). This study expect a negative relationship between profitability and leverage. In previous studies, the measure of profitability used was operating earnings before interest payments and income tax (EBIT). But following Shah and Hijazi (2005) this study measure profitability (PF) as the ratio of net income before taxes divided by total assets. Empirical Results Data is selected from Sugar Sector of Karachi Stock Exchange as given by State Bank of Pakistan in the publication Balance Sheet Analysis of Joint Stock Companies Listed on The Karachi Stock Exchange 2001-2006 and 2003-2008. The period of study covers eight years, from 2001 to 2008. However several companies are not included in data because complete information is not available and over all 16 companies data is collected. Data Analysis This atudy uses Regression analysis This paper estimates that Lvit = Bo + BXit + E Lvit = The measure of leverage of a firm i at time t Bo = The intercept of the equation Bi = The change coefficient for xit variables Xit = The different independent variables for leverage of a firm i at time t E = The error term Table 1 Model R Square F Sig 1 .388 79.718 .000 Table 1 shows that F ratio for the regression model is significant, which indicates that regression model is best fit. Total variation in the independent variable explained by the regression model as indicated by Rsquare is 0.388. Table 2 reports the results of regression analysis. Analysing the results for the effects of independent variable on dependent variable, this study find that asset tangibility is negatively correlated with leverage, However, this do not find much evidence that this relationship is statistically Significant. Results indicate that tangibility is not explanatory variable of leverage because regression coefficient is not statistically significant. Thus this study rejects the hypothesis 1 that leverage and tangibility have significant positive relationship. The results thus do not confirm the Jensen and Mecklings (1976) and Myers (1977) version of trade-off theory that debt level should increase with more fixed tangible assets on balance sheet. Profitability is statistically significant and nagatively correlated with leverage as showmn in table 2 and shows that more profitable firms are using less debt and more dependent on internal financingand later on issuing stocks, Consistent with the findings of Titman and Wessels (1988), Rajan and Zingales (1995) all find gearing to be negatively related to the level of profitability. Of all the independent variables chosen for this study, profitability has turn out to be the most statistically significant determinant of capital structure in the context of Pakistan. Profitability is negatively correlated with income. This suggests that profitable firms in Pakistan use more of equity and less debt. This supports the pecking order theory and also approves the earlier hypothesis about profitability that laverage and profitability have significant positive relationship. CONCLUSION This finding is in contrast to the earlier finding by Shah and Hijazi (2004). They found that tangibility was not significantly related to leverage ratio. Financial Situation According to the pecking order hypothesis, firms have a preference for internal finance over external finance. Availability of internal funds is captured by the variables profitability and liquidity. If the pecking order theory holds, these two should be negatively correlated with capital structure. Alternatively, according to the trade-off hypothesis, firms would choose to have high levels of debt in order to obtain attractive tax shields. This would imply a positive relationship between profitability and debt. Jensen (1986) argues that cash-rich firms should acquire new debt to prevent managers from wasting free cash flows, which implies positive relationship for liquidity. Capital Structure Definition DYNAMICS IN THE DETERMINANTS OF CAPITAL STRUCTURE IN THE UK Alan A. Bevan (London Business School) Jo Danbolt (University of Glasgow) Working Paper 2000/9 THE THEORY AND PRACTICE OF CAPITAL STRUCTURE AND ITS DETERMINANTS In their cross-sectional analysis of the determinants of the capital structure for companies in the G-7 economies, Rajan and Zingales (1995) examine the extent to which, at the level of the individual firm, gearing may be explained by four key factors, namely, the level of growth opportunities (proxied for by the ratio of the market value to the book value of total assets), size (measured as the natural logarithm of sales), profitability (earnings before interest, tax and depreciation to total assets), and collateral value (tangibility, proxied by the ratio of fixed to total assets). Profitability Modigliani and Miller (1963) argue that, due to the tax deductibility of interest payments, companies may prefer debt to equity. This would suggest that highly profitable firms would choose to have high levels of debt in order to obtain attractive tax shields. Alternatively, Myers (1984) and Myers and Majluf (1984) predict that, as a result of asymmetric information, companies will prefer internal to external capital sources. Thus a pecking-order is established, whereby companies with high levels of profits tend to finance investments with retained earnings rather than by the raising of debt finance. Consistent with this theory, Titman and Wessels (1988), Rajan and Zingales (1995) all find gearing to be negatively related to the level of profitability. Consequently, we hypothesise: H: The level of gearing is negatively related to the level of profitability. Tangibility Titman and Wessels, and Rajan and Zingales find a significant positive relationship between tangibility and gearing. The Determinants of Capital Structure Choice Sheridan Titman; Roberto Wessels IN RECENT YEARS,A number of theories have been proposed to explain the variation in debt ratios across firms. The theories suggest that firms select capital structure depending on attributes that determine the various costs and benefits associated with debt and equity financing.

Trapped in the Red Room A Look into the Mind of the...

Trapped in the Red Room: A Look into the Mind of the Original Mrs. Rochester â€Å"One is very crazy when in love† (Freud). Freud made this statement nearly one hundred years ago. As one of the founders of modern psychology what would he have to say about the mad woman in the attic? Was she mad, in love, suffering from hysteria, or simply a product of nature versus nurture? Neither of which were very kind to her. In Jane Eyre we as the readers are presented with a singular perspective in nearly true to form autobiographical narrative. From Jane’s viewpoint and from a mid 19th century depiction of mental illness, the original Mrs. Rochester is hardly a person to sympathize with. Yet there is much more to this tale that is desperately begging†¦show more content†¦Despite all his faults in Jane Eyre, the one virtue he maintains in that story is sorely lacking in the Wide Sargasso Sea, his personal integrity. â€Å"Nor was I anxious to know what was happening behind the thin partition which divided us from my wife’s bedroom† (Rhys 140). â€Å"You bring that worthless girl to play with next door and you talk and laugh and love so that she hear everything. You meant her to hear.’ ‘Yes that didn’t just happen. I meant it’† (Rhys 154). A man who is capable of treating Antoinette in such a way, of purposefully â€Å"breaking her up† as Christophine would say, makes one wonder if he is even capable of redemption in Jane Eyre. His little encounter with Amà ©lie could be ascribed to his intoxication on the voodoo love potion, though by the time he sleeps with Amà ©lie many hours have passed including a trip to the ruined house and a nap in its eerie surroundings. Furthermore, Rochester’s actions are inherently selfish. Motivated solely by greed, he seems to be unwilling to let Antoinette have even a small portion of happiness. He had the option to leave with at least half the dowry and let her move on with her life, but chooses instead to keep both her money and mind locked away in the attic of a cold, colorless castle. Regardless of whether this depiction of our Mr. Rochester is canon or not, Jean Rhys effectively makes us despise the new Rochester all by solely changing theShow MoreRelatedRole Of Childhood In Jane Eyre1118 Words   |  5 Pageswith their mind as a blank page and that this page must be written on – that is to say the mind must be filled with knowledge, ideas and values, which, modified by experience, would equip children with what they needed to function as social beings. Another view of children within the novel held that children were born in original sin and that their souls must be cleansed of that sin, often by quite stern measures, to make them fit for salvation; this is the belief that lies behind Mr. BrocklehurstsRead MoreA Dialogue of Self and Soul11424 Words   |  46 Pagesexperiences, and her technique is immediately evident in these opening passages.2 For while the world outside Gateshead is almost unbearably wintry, the world within is claustrophobic, ï ¬ ery, like ten-year-old Jane’s own mind. Excluded from the Reed family group in the drawing room because she is not a ‘contented, happy, little child’ – excluded, that is, from ‘normal’ society – Jane takes refuge in a scarlet-draped window seat where she alternately stares out at the ‘drear November day’ and readsRead MoreManagement Course: Mba−10 General Management215330 Words   |  862 Pagesstress, and encourage organizational members to act ethically and further promote the interests of the organization.21 If bureaucracies are not managed well, however, many problems can result. Sometimes, managers allow rules and SOPs, â€Å"bureaucratic red tape,† to become so cumbersome that decision making is slow and inefï ¬ cient and organizations Jones−George: Contemporary Management, Fourth Edition I. Management 2. The Evolution of Management Thought  © The McGraw−Hill Companies, 2005 Read MoreDeveloping Management Skills404131 Words   |  1617 PagesHartford Julia Britt, California State University Tim Bothell, Brigham Young University David Cherrington, Brigham Young University John Collins, Syracuse University Kerri Crowne, Temple University Todd Dewett, Wright State University Andrew J. Dubrin, Rochester Institute of Technology Steven Edelson, Temple University Norma Givens, Fort Valley State University Barbara A. Gorski, St. Thomas University David Hampton, San Diego State University Stanley Harris, Auburn University Richard E. Hunt, Rockhurst College

Washington Mutual Failure free essay sample

Failing in business isnt fatal. Its often a precursor to success. Its not uncommon for successful entrepreneurs to fail before achieving success. During turbulent economic times, such as now, we can easily find ourselves shifting the blame for the failure of our businesses to factors outside of our control. Similarly in economic boom times we can find ourselves being quite proud of the results we achieve almost without having a clue as to how we have accomplished them. This somewhat hypocritical approach to business can be very dangerous. In order to ensure the future growth and sustainability of our businesses we have to be honest about what we are doing right and what we are doing wrong. Seattle-based Washington Mutual, Inc. (WaMu), one of the nations leading financial services companies, is the outgrowth of a demand to rebuild its home city after a devastating late 19th-century fire. Since then the company has transitioned from a building loan to a mutual bank. Until the 1960s, the company operated solely in the Seattle area. Then, an acquisition drive during the 1990s propelled Washington Mutual to the top ranks of U. S. home mortgage makers. Faced with a steady downward pressure in the sector at the midpoint of the first decade of the 2000s, Washington Mutual has redirected its attention to its retail banking business. The financial turmoil in the United States has claimed Washington Mutual, on its 119th year anniversary and is being called the biggest banking failure in American history. The United States regulators have seized and sold some of Washington Mutual’s assets to JPMorgan for nearly two billion dollars. This seizure and sale is an attempt to clean up the banking industry filtered with toxic mortgage debt. Washington Mutual had insufficient liquidity to meet its obligations and was in an unsafe and unsound condition to transact business; the government had no choice but to step in. The birth of the financial institution responsible for forming Washington Mutual, Inc. occurred after the near-death of the city. On June 6, 1889 a glue pot in the basement of a downtown building boiled over engulfing the downtown district in flames. In total, 25 city blocks, 120 acres, including the heart of the city were destroyed. It was time for the city to form a new financial institution, one created specifically to help the rebuilding of the city of Seattle. On September 25, 1889 Washington National Building Loan and Investment Association filed articles of incorporation offering its stockholders a safe and profitable means for investing and lending. On June 25, 1908, the company changed their name to Washington Savings and Loan Association and in 1911 Eugene Favre, co-founder of Murphy Favre, Inc. became a member of the board marking the start of a relationship between the investment firm and Washington Mutual. During World War I, Washington Mutual expanded its assets by 68 percent, escaping the impact of the recession that followed. The company emerges from the war with the reputation as the strongest savings and loan institution in Washington. Deposits increased strongly from $15 million in 1921 to more than $26 million two years later. The Wall Street stock market crash of 1929 gave way to a decade long economic depression that brought devastation for the U. S. banking industry. The years were difficult but Washington Mutual persevered avoiding any financial ruin. BY the end of the 1930’s, Washington Mutual had nearly 100,000 depositors and was about to benefit once again from the economic growth brought about by the century’s second great military struggle. During World War II, Washington Mutual sold nearly $30 million in war bonds. In 1941, the bank merged with Coolidge Mutual Savings Bank, increasing its resources to more than $77 million and its deposits were more than $72 million. Washington Mutual did not move outside the greater Seattle area until1964. Five Washington Mutual offices branches were established in the Seattle area between 1955 and 1961. From 1964 forward, the geographic expansion extended the bank’s presence throughout Washington. Between 1965 and 1973, the bank opened 15 branch offices in the Seattle area and in regions across the state. This proved to be a catalyst for the Washington Mutual’s animated growth through and during the 1990’s. IN 1991 Washington Mutual ranked Washington’s largest independently owned financial institution with $8 billion in assets and 84 financial centers and 17 home loan centers in its ome state, Oregon, and Idaho. Between 1991 and 1995, Washington Mutual’s profits more than double going from $80. 6 million to $190. 6 million, its deposits increased from $5. 4 billion to $10. 6 billion, and its assets swelled from $8 billion to $21. 6 billion. The number of branch offices operated by the bank had increased to 248 financial centers and 23 loan centers by the end of 1995. In July 1996 Washington Mutual completed the largest acquisition in its 107 year history. Washington Mutual acquired a $1. billion American Savings Bank, nearly doubling its size, making it the third largest savings and loan in the United States. The core values of Washington Mutual were to be fair. our actions matched our words, to be caring; we speak candidly and listen openly, to be human; we celebrate our successes and learn from our failures, to be dynamic; we are never satisfied with the status quo and know that we must continually reinvent our organization and ourselves, and to be driven; we set high, measurable goals and hold ourselves accountable to achieve them. The vision of Washington Mutual was â€Å"To be the nation’s leading retailer of financial services for consumers and small businesses. † The mission statement for Washington Mutual was â€Å"To build strong, profitable relationships with a broad spectrum of consumers and businesses. We will do this by delivering products and services that offer great value and friendly service, and by adhering to our core values of being fair, caring, human, dynamic, and driven. † Washington Mutual combined banking and friendly customer service in a welcoming retail environment. The concept represented the innovative approach to retail banking combining a variety of elements to create an inviting customer experience. The company institutes The School Savings program which was introduced to help teach children the value of saving money; on March 13, 1923, the first School Bank Day almost 17,000 children made deposits. Washington Mutual offered WaMu Free Checking account and online banking to personal loans, WaMu’s Retail Banking and Financial Services business offers a comprehensive line of deposit and other retail banking products and services to consumers. The company also offered products and services to small businesses and assists them with payroll, cash management, and retirement planning. (WaMu). WaMu Investments, Inc. is a full service brokerage that specializes in helping individuals meet their financial goals. The company offered a broad range of investment products, including individual retirement accounts (IRAs), fixed annuities, life insurance, stocks and bonds as well as retirement and estate planning. (WaMu). WaMu was one of the nation’s leading home mortgage lenders. In 2006, they funded more than $150 billion in home loans for individuals and families across the nation. They offered some of the most competitively priced and desirable products in the industry. (WaMu). WaMu also made insurance products available to customers that compliment the mortgage lending process including private mortgage insurance and mortgage life insurance, as well as flood, homeowners’, earthquake and other property and casualty insurance. (WaMu). WaMu offered commercial real estate property owners and investors great value with competitive pricing and quick, reliable processing. WaMu). WaMu card service was a leading provider of credit cards to middle market consumers throughout the United States. Washington Mutual combined experience, analysis, technology and outstanding customer service and looked to build long lasting relationships with customers by providing products and services that met their evolving financial needs. (WaMu). Washington Mutual posts its biggest loss ever. Its stock prices fell to just over $3. 00 in mid July which is roughly 65% less than the $8. 75 a share previously paid. The cost to insure the company’s debt rose to a record high which is a sign that investors are becoming nervous about the company’s ability to pay back its loans. Washington Mutual had $44 billion of debt that was due this year and $43 billion due between 2009 and 2014. In early March, JPMorgan Chase sent a letter to Washington Mutual urging them to consider a deal quickly because the environment was becoming worse. Washington Mutual declined, preferring to remain independent. Washington Mutual with $307 billion in assets would be the biggest bank failure in history. In September of 2008 Washington Mutual had 2,239 branches in 15 states. It had 43,198 employees in June of 2008. On September 25, 2008, 119 years from the birth of Washington Mutual; the U. S. government closed the institution and sold its banking assets to JPMorgan Chase amp; Co for $1. 9 billion. WaMu was worst hit by the housing crisis and insisted it could remain independent but had quietly hired someone to identify potential bidders but was unsuccessful. Until recently, Washington Mutual was one of Wall Street’s strongest performers; reaping profits quarter after quarter. The 2008 financial crisis is affecting millions of Americans and is one of the hottest topics in the Presidential campaigns. In the last few months we have seen several major financial institutions be absorbed by other financial institutions, receive government bailouts, or outright crash. So what caused the financial crisis of 2008? This is actually the perfect storm which has been brewing for years now and finally reached its breaking point. Let’s look at it step by step. Market instability The recent market instability was caused by many factors, chief among them a dramatic change in the ability to create new lines of credit, which dried up the flow of money and slowed new economic growth and the buying and selling of assets. This hurt individuals, businesses, and financial institutions hard, and many financial institutions were left holding mortgage backed assets that had dropped precipitously in value and weren’t bringing in the amount of money needed to pay for the loans. This dried up their reserve cash and restricted their credit and ability to make new loans. There were other factors as well, including the cheap credit which made it too easy for people to buy houses or make other investments based on pure speculation. Cheap credit created more money in the system and people wanted to spend that money. Unfortunately, people wanted to buy the same thing, which increased demand and caused inflation. Private equity firms leveraged billions of dollars of debt to purchase companies and created hundreds of billions of dollars in wealth by simply shuffling paper, but not creating anything of value. In more recent months speculation on oil prices and higher unemployment further increased inflation. How did it get so bad? Greed. The American economy is built on credit. Credit is a great tool when used wisely. For instance, credit can be used to start or expand a business, which can create jobs. It can also be used to purchase large ticket items such as houses or cars. Again, more jobs are created and people’s needs are satisfied. But in the last decade, credit went unchecked n our country, and it got out of control. Mortgage brokers, acting only as middle men, determined who got loans, then passed on the responsibility for those loans on to others in the form of mortgage backed assets (after taking a fee for themselves originating the loan). Exotic and risky mortgages became commonplace and the brokers who approved these loans absolved themselves of responsibility by packaging these bad mortgages with other mortgages and reselling them as â€Å"investments. Thousands of people took out loans larger than they could afford in the hopes that they could either flip the house for profit or refinance later at a lower rate and with more equity in their home – which they would then leverage to purchase another â€Å"investment† house. A lot of people got rich quickly and people wanted more. Before long, all you needed to buy a house was a pulse and your word that you could afford the mortgage. Brokers had no reason not to sell you a home. They made a cut on the sale, then packaged the mortgage with a group of other mortgages and erased all personal responsibility of the loan. But many of these mortgage backed assets were ticking time bombs. And they just went off. The housing market declined The housing slump set off a chain reaction in our economy. Individuals and investors could no longer flip their homes for a quick profit, adjustable rates mortgages adjusted skyward and mortgages no longer became affordable for many homeowners, and thousands of mortgages defaulted, leaving investors and financial institutions holding the bag. This caused massive losses in mortgage backed securities and many banks and investment firms began bleeding money. This also caused a glut of homes on the market which depressed housing prices and slowed the growth of new home building, putting thousands of home builders and laborers out of business. Depressed housing prices caused further complications as it made many homes worth much less than the mortgage value and some owners chose to simply walk away instead of pay their mortgage. The credit well dried up These massive losses caused many banks to tighten their lending requirements, but it was already too late for many of them†¦ the damage had already been done. Several banks and financial institutions merged with other institutions or were simply bought out. Others were lucky enough to receive a government bailout and are still functioning. The worst of the lot or the unlucky ones crashed. The Economic Bailout is designed to increase the flow of credit Many financial institutions that are saddled with risky mortgage backed securities can no longer afford to extend new credit. Unfortunately, making loans is how banks stay in business. If their current loans are not bringing in a positive cash flow and they cannot loan new money to individuals and businesses, that financial institution is not long for this world. The Washington Mutual is one of these financial institutions. The idea behind the economic bailout is to buy these risky mortgage backed securities from financial institutions, giving these banks the opportunity to lend more money to individuals and businesses, hopefully spurring on the economy. Credit got us into this mess! Why give more?!? Ironic isn’t it? Yes, it is true that credit got us into this mess, but it is also true that our economy is incredibly unstable right now, and being that it is built on credit, it needs an influx of cash or it could come crashing down. This is something no one wants to see as it would ripple through our economy and into the world markets in a matter of hours, potentially causing a worldwide meltdown. As I previously mentioned, credit in and of itself is not a bad thing. Credit promotes growth and jobs. Poor use of credit, however, can be catastrophic, which is what we are on the verge of seeing now. So long as the bailout comes with changes to lending regulations and more oversight of the industry, along with other safeguards to protect taxpayer dollars and prevent thieves from not only getting of the hook, but profiting again, there is potential to stabilize the market, which is what everyone wants. Whether or not it works is to be seen, but as it has already been voted on and passed, we should all hope it does. JPMorgan buys WaMu In the biggest bank failure in history, JPMorgan Chase acquired massive branch network and troubled assets from Washington Mutual for $1. 9 billion.

Safety In Our Schools Essays - Firefighting, Fire Prevention

Safety in our Schools Safety in the schools can mean life and death in many situations. One way is fires. With such things as thin walls, flammable interior, or exterior, schools could turn into a flaming inferno. All schools should be routinely checked for things such as escape routes from the building and the ease of opening and closing these routes. They also should be clear from any interfering things nearby. Schools should have such things as walls inside and outside that do not have flammable material. Often this is the reason that many brick buildings burn. Many think brick is the safest but often is inter-mixed with interiors that burn easily. If such buildings had non-flammable interiors, then such things might not happen. Schools should go through safety procedures with the children thoroughly at least once a month. The schools should try to communicate with the children about fires and try to get the point across clearly. Such things that should be mentioned are that children should leave the building quietly, even this is probably the hardest thing to do. The schools should try to teach the kids that running might get you out, but could injure or kill many more, some of them being friends or people you care for such as brother's or sister's even if they don't like them now, they'll miss them when they die. When the kids get out of the school, they should go to a selected place to wait for others and teachers to take authority. The children should then proceed to try to stay clear of the firemen and police officers that might soon arrive because of the consequences which might encounter the child if she/he gets in their way. The Firefighters could lose their concentration with such distractions could cost someone's life. When the children interfere with the firefighters, they could cause an explosion and be struck by equipment, colliding with a vehicle, etc. They would also slow down the firefighters often causing in yet another life or to the firefighter themselves. As in a house fire, your class should take precautions if you see smoke coming in your room or down the hall. If it's coming in your room, then you should close the door immediately if it's open or feel it if it's cold to see if its hot. If its not hot, open it slowly and proceed outside. If it's hot or there's smoke coming inside, close the door. Look for a fire escape if your above the first floor and exit onto it. If there is none, then wave something noticeable out the windows and try to get someone's attention. If you're on the first level, then just climb out the windows. Make sure you go out in some sort of an orderly fashion because if there is shoving or pushing, then people could get caught up, trampled on, or knocked back causing havoc. If you all leave patiently then you all have a better chance of getting out together and alive, non-cooperation could lead to people getting caught up or left behind, or getting out to late and being killed by the smoke coming in. Try to prevent something like this from starting by first trying to notice a new smell and see if it's smoke, if all agree then proceed to investigate. These are some very good tips on how to better prepare yourself and this is how I feel about fires and how they should be taught and helped be prevented. Bibliography 1. New York Times, 2 December 1958 2. "Urgent Message-Safe Schools," Newsweek, 15 December 1958 3. "A Nation's Haste to learn From a City's Sad Lesson," Newsweek, 15 December 1958 4. "Uses A Home Escape Plan," Lesson Plan #4 5. "Helps the Fire Department" Lesson Plan #9 6. "Fire Safety in the Home," 1976 Article #1 - 90 Perish in Chicago School Fire On December 1, something very unexpected happened in Chicago. A fire broke out killing 87 children and three nuns. It was at Our Lady of the Angels Roman Catholic Parochial School. Normally children would use the fire drills to exit a building calmly and quietly, but not this time. Children forgot these drills because of the panic. Some jumped out windows and others trampled over others to get out first and alive. There were rescue efforts made by the nuns, teachers, priests, janitors, and passer-bys who rescued more than 1,000 children. One class was found dead at their desks. They have found no evidence of