Firm Investment Efficiency
The book by Joseph E. Dietsche and Kenneth C. Taylor, Firm Investment Strategies: Valuing and Investing in Human capital draws insights from several agency theories. The book therefore uncovers for the first time the relationship between firm investment and financial leverage. The authors explain how financial leverage relates to financial risk and hence to company valuation. They also describe why financial instruments are often used as a source of leverage for small and mid-size companies. Finally, it is revealed that the effect of financial leverage on company valuation is particularly important for high information asymmetrical firms.
Firm Investment Strategies identifies five major categories of investments: Real Estate, Corporate Real Estate, Lending, Financial Products, and Consulting. Within these categories, they discuss the types of firm investment decisions to make when determining which category a particular firm falls under. They then proceed to evaluate and compare the advantages and disadvantages of each category. The authors describe the major benefits of all categories and explore some potential pitfalls associated with each one.
The main focus of Firm Investment Strategies is on corporate business investment. As such, it provides a very good starting point for anyone who is new to corporate business investment and would like to know more about what is involved in making such investments. The book rightly states that the value of any asset is primarily determined by its relationship to a company’s core competencies. Thus, firms should be analyzed on their current and future human capital needs. Since human capital is a very sensitive issue, careful attention is paid to this in this research paper.
The author rightly says that government intervention is needed in firms’ investments to avoid too much governmental interference. The author goes into detail about the types of government interventions that can be made, and why. The government intervention is aimed at increasing market competition. The author discusses various measures that have been implemented and explains why they are important and necessary to ensure competitive advantage.
Subsequent chapters focus on investment management. These chapters discuss various topics related to economic stimulus package, including: financial service costs, corporate profits and losses, firm investment decisions, and economic stimulus package. The discussions are organized around four main topics. The first topic focuses on firms’ internal structure; the second on financial service costs, third on firm investment decisions, and finally the fourth addresses the role of government. I find this very interesting and useful information.
Overall, this is an excellent read. The main message is that, if you want firm performance that meets your expectations, you need to closely monitor and follow government-intervened firms’ investment decisions. The book does not provide the detail and data that I would need in assessing this, but I believe that anyone who follows these investment decisions can benefit from the detailed discussions and examples throughout the book. The book also contains many appendices that further illustrate the importance of government intervention in terms of stimulating investment and savings decisions.